A Vote For Romney Is A Vote For Austerity-- In Other Words, Depression

Krugman gave a talk in Paris today and yesterday he posted the slides he's using as visual aids on his blog, like the one above. He also did a provocative NY Times column about the austerity debacle. It's not good news for the societies being dragged into a worldwide austerity regime by the selfish, greed-obsessed economic and political elites.

Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure-- changes in real G.D.P. since the recession began-- Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.


Nor is Britain unique. Italy is also doing worse than it did in the 1930s-- and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.

And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.

...Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead-- and that this would lead to faster economic growth. “Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.”

How could the economy thrive when unemployment was already high, and government policies were directly reducing employment even further? Confidence! “I firmly believe,” declared Jean-Claude Trichet-- at the time the president of the European Central Bank, and a strong advocate of the doctrine of expansionary austerity-- “that in the current circumstances confidence-inspiring policies will foster and not hamper economic recovery, because confidence is the key factor today.”

Such invocations of the confidence fairy were never plausible; researchers at the International Monetary Fund and elsewhere quickly debunked the supposed evidence that spending cuts create jobs. Yet influential people on both sides of the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in particular, because the doctrine of expansionary austerity dovetailed with their ideological agendas.

Thus in October 2010 David Broder, who virtually embodied conventional wisdom, praised Mr. Cameron for his boldness, and in particular for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.” He then called on President Obama to “do a Cameron” and pursue “a radical rollback of the welfare state now.”

Strange to say, however, those warnings from economists proved all too accurate. And we’re quite fortunate that Mr. Obama did not, in fact, do a Cameron.

Which is not to say that all is well with U.S. policy. True, the federal government has avoided all-out austerity. But state and local governments, which must run more or less balanced budgets, have slashed spending and employment as federal aid runs out-- and this has been a major drag on the overall economy. Without those spending cuts, we might already have been on the road to self-sustaining growth; as it is, recovery still hangs in the balance.

And we may get tipped in the wrong direction by Continental Europe, where austerity policies are having the same effect as in Britain, with many signs pointing to recession this year.

The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist--- or for that matter any undergraduate who had read Paul Samuelson’s textbook Economics-- could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.

The Financial Times pointed out that the Eurozone jobless rate is at euro-era high. The number of jobless in the 17 countries of the single currency bloc rose in December for an eighth consecutive month to 16.5 million-- 10.4%.

Critics of EU efforts argue that Brussels has focused on fiscal austerity at the expense of growth. Some also belittled the new initiative signed on Monday as little more than warmed up commitments to policies that have been promised or proposed before.

“The council’s [representing national governments] presentation of a strategy for growth is a strategy in name only being far too narrow in scope, too vague in commitments and too small in ambitions to have much impact,” said Sony Kapoor, head of the economic consultancy Re-Define.

“While it is important the council is at least talking about growth and the need to generate employment, they have precious little of substance to say at this point.”

José Manuel Barroso, the European Commission president, on Tuesday presented EU leaders with a dire report on employment across the region, particularly among the young, where countries such as Spain and Greece are posting youth unemployment rates of close to 50 per cent. “We cannot accept that almost a quarter of Europe’s young people are unemployed,” Mr Barroso said.

...[U]nemployment in the debt-laden periphery has reached severe proportions. Portugal’s jobless rate rose the fastest out of the entire bloc, up 0.4 per cent to 13.6 per cent. Spain was steady at 22.9 per cent, the highest in the EU.

EU leaders pledged to accelerate the spending of European development funds to help alleviate unemployment. But the money they have in mind, from the regional and social affairs budget, has already long been earmarked for boosting jobs and growth, and none of the countries will receive new resources.

National governments will have to submit plans to boost job creation, outlining new measures to cut claimants. Teams of EU officials will assist those countries with the highest jobless rates, a process which started on Tuesday with preliminary contacts with the national capitals. But under tough new fiscal rules, no high-debt governments will be able to stray from the austerity measures.

“We cannot resort to fiscal stimulus to boost growth at the present time,” Mr Barroso said.