Friday, March 25, 2011

Krugman on the Failure of Austerity

Krugman points out that austerity measures have reduced employment(HT:Brad Delong):
"Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.
"What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong."
As usual, he jumps to the same tired conclusions which tiptoe around the obvious need to redistribute currency to high-spending consumers:

"A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts."
It's like Keynesians are afraid to admit to the obvious conclusions that demand-side economics engender.

Full article at the NYTimes

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