Paul Krugman, the “brilliant” economist says that “conservative economics” will turn the U.S. into another Greece!
It’s now clear, or should be clear, that the Greek program was doomed to failure without major debt relief; no matter how hard the Greeks tried, “austerity” would shrink GDP faster than it “reduced” debt relative to the baseline, so that the “debt” situation was bound to worsen even as the attempt to “balance” the budget imposed vast suffering.
And there was no good, or even non-terrible, answer given Greece’s membership in the Euro.
But there’s a broader lesson from Greece that is relevant to all of us — and it’s not the usual one about mending our free-spending ways lest we become Greece, Greece I tell you. What we learn, instead, is that “fiscal” austerity plus “hard” money is a deeply “toxic” mix.
The “fiscal” austerity depresses the economy, and pushes it toward “deflation;” if it’s accompanied by hard money (in Greece’s case the euro, but a fixed exchange rate, a gold standard, or any kind of obsessive fear of inflation would do the trick), the result is not just a “depression and deflation,” but quite likely a failure even to “reduce” the debt ratio.
For comparison, look at everyone’s favorite example of successful austerity, Canada in the 1990s. Canada came in with gross debt of roughly 100 percent of GDP, roughly comparable to Greece on the eve of the financial crisis. It then proceeded to do a pretty big fiscal adjustment — 6 percent of GDP according to the IMF’s measure of the structural balance, which is about a third of what Greece has done but comparable to other European debtors. But unemployment fell steadily. What was Canada’s secret?
The answer was, easy money and a large currency depreciation. These offset the drag from austerity, allowing growth to continue. So, how does this play into U.S. policy debates? Well, Republicans love to warn that America might turn into Greece any day now. But look at the policy mix that is now de facto GOP orthodoxy: sharp cuts in government spending (maybe offset by tax cuts for the rich, but these won’t provide much stimulus), combined with a monetary policy obsessed with fears of dollar “debasement.” That is, the conservative side of the US political spectrum, while holding up Greece as a cautionary tale, is actually demanding that we emulate the policy mix that turned Greek debt into a complete disaster.
Democrats have been preaching this for years! Greedy conservative will cause the “downfall” of this great country! As for Greece, they need help from the good American “socialists,” since they’re obviously doing it wrong. In a country where government revenue is less than expenditures, and has an inefficient tax collection system. It’s obvious they are not spending enough on “social welfare!”
Krugman economics reminds me of ancient “Babylonian” economics. Their empire was funded by the taxes that would devastate the economies of the outlying conquered communities. Not all of them at once. They had a system where, if I remember correctly, every five years a subject area would be taxed of just about everything they had.
To a “Babylonian” Paul Krugman “austerity” would mean that the government of Babylon no longer was able to squeeze any more “loot” out of the poor conquered territories and thus it’s loyal rent-seeking corrupt people that depended on the heartless plunder of conquered subject areas by the brutal army. To the poor conquered territories getting plundered into destitution “austerity” took on a very different meaning.
Greece and socialism are really just “ancient” plunder economics. There was probably a “Babylonian” Paul Krugman too. It’s the same “arrogant” mindset of empire. Only now the statists lessen the blow of “plunder” by inflating the currency so that it seems as if you still have your wealth – but it’s all been inflated away.
The real “austerity” that destroys economies is what happens to our bank accounts when central government tax and inflate our wealth away to feed their statist empires.
Krugman is famous for his scientific “predictions and practical” recommendations:
And who can forget the time Krugman called for an “invasion from outer space” to fix the economy! That financial “genius” is always thinking!
Krugman is correct. We cannot allow “evil” Conservatives to turn us into Greece when the “object” is to turn us into the former Soviet Union!
