The Tea Party was always a scam, driven by greedy people and their fundamental disdain of democracy. They purloined the Don't Tread on Me flag in their show of contempt after their 2008 loss of power when Americans realized the invasion of Iraq and deregulation of financial markets were some of America's worst military and financial blunders. The Tea Party couldn't abide by the election then and continue to suppress the right to vote throughout our country today. Our president saddles up to war criminals, and I hope the blue wave from 2018 turns into a tsunami next year.
83
No, the deficits are what is hurting us, like a cancer growing in our system every year. The GOP has lost moral authority, so it's up to the Dems to wake up to the reality that left unchecked, our low-unemployment economy's chronic deficits will eventually pile up so much debt that the interest costs will choke off domestic spending.
Ronald Reagan knew exactly what he was doing by cutting taxes, followed by the Tea Party extremists, in order to starve the beast.
Yes, it's a decade away, but the clock is ticking. Krugman is a fool to take the MMT veiwpoint.
6
It's only a simple equation in the US. Stimulus worked here because ours is the dominant world reserve currency; and, essentially, we can painlessly (i.e., not painless for savers) print money ad libitum. Try being a "no brain'r stimulus" economist is Argentina, ...you'll end up being owned by Paul Singer.
9
So, what do you do about the debt?
7
Mr. Krugman continues his absurd left wing woods economics lectures on how deficits don’t matter and balancing budgets is a bad thing. It’s like Greece, Argentina, Venezuela etc never happened. Add this to the constant cries for income redistribution and you know he is angling for a job in a potential Sanders administration. May we never see that day.
13
Thank you Professor Krugman and all of the intelligent people who leave comments. Happy New Year!
21
Corporate Welfare is America’s holy mantra. Everyone else - stand on your own two feet - or die.
58
See the latest Atlantic for an evaluation of Krugman.
His one-sided partisanship discredits the causes he supports.
Once an economist, now a political hack.
13
When economic "policy" is the same -- cut taxes on the rich and inflict austerity on the "little people" -- no matter what the economic situation, you know the "policy" is a joke!
This 19th c snake-oil salesman's "cure for all that ailes you" is supposed to be joke! Yet Mneuchin and co keep peddling it...
17
The public has has lost faith in elites because none of their policies worked! Did the ACA reduce health care costs? No. Did the The War on Poverty end poverty? No. Would Krugman’s preferred policies have led to a stronger, more sustainable economy? The history of government programs and central planning suggest: No.
9
I still don’t grasp why relatively poor people in the US think that Trump will make their lot better. Similarly, here in the UK, I can’t understand why people poorer than me - and I’m by no means wealthy - voted for Brexit and Boris Johnson’s Conservative Party. As we enter the Non-Roaring 20s I fear for our future more than ever, and I’m in my late-50s.
31
I suspect if you took all of the Republican tax cuts and invested in infrastructure, we would be living in a much different society.
1. Money funneled to workers actually get spent on goods. The wealthy take it and invest passively (with maybe a new McLaren thrown in) and people who aren't wealthy spend a lot of it and save some (remember, the US has a very low savings rate) which is a good thing. This would actually increase GDP. As you have pointed out many times, the Republican tax cuts did not improve productivity and had a very weak GDP impact which is fading quickly.
2. In addition to putting money in the pockets of workers who spend it, with infrastructure you get a significant boost in productivity. Better educated citizens (god forbid!), better transportation, etc. would all improve productivity. In all likelihood, our week GDP growth is most likely driven by poor productivity improvements.
As you also noted before, the Obama stimulus was simply not enough and a lot of the industries that got bailed out were mostly autos and finance. One can argue the former is a dying industry.
23
The comentary and comments go through all sorts of contortions to hide the Obama administrations blame for embracing austerity. This is well documented by the New Yorker expose on the Dec 2008 Summer's memo in 2012, and Krugman's own comentary on the memo. Inconvenient it might be for an economist who wants to maintain influence in the Democratic circles, to place blame where it belongs, I have no such constraint. Democrats didn't fight austerity because the all believe in it, and still do. Hence every Democratic candidate outlines how their program is paid for with taxes. Obama followed Summers to austerity neither to sound serious, nor to undermine his own center left government. Republican opposition to stimulus was predictable, and no more surprising than the opposition to FDR, from 1933 onward.
The history painted of blaming Republicans distorts reality and scarily says the Republican lite bussiness friendly and globalist policies of Presidents Clinton and Obama, and the campaign of Hillary Clinton, are not to blame.
Given a choice between Trumps 3.5% unemployment with 2% inflation, and a return to the Obama era that Biden promises, who do you think rust belt midwest rural white swing state voters will pick?
9
Austerity is a word construction, invented to make fiscal responsibility sound bad. Wake me up when we’re running a surplus - then we can talk about austerity
3
We did have a surplus— under Bill Clinton, a Democrat. But that was quickly obliterated once the signature tax cut policies of the next President— George W. Bush— were enacted shortly after his election. Under Republicans, permanent and huge deficits returned. Go look at CBO data (easily found on the home page) and see that, for as long as they have been tracking this, deficits, in nominal dollars and percent of GDP, fall under Democratic administrations and rise under Republican ones. By a lot. The only exception is the first few years of Obama’s as a consequence of measures to combat the GFC, much of which were put in place at the tail end of Bush’s presidency (eg TARP).
34
So, was the Tea Party a response to George Bush's failed economic policies? I doubt it. He was Republican. I think that whole austerity thing of theirs was based on partisanship and skin color - namely, Obama's.
36
An economy is not like a household, but more than 80 percent of ordinary citizens have not been shown positive examples to make that intuitively believable. All that most citizens hear is media bashing of Trump for running large deficits, thus reinforcing the idea that deficits are bad. What percentage of citizens have taken Macroeconomics 101? Far less than 20 percent, and talking down to them serves no positive purpose.
Everything in politics and economics is driven by ulterior motives. The pretense that economics is like physics because they both deal in indecipherable equations is hogwash. Understanding that, the switch in the Republicans' stance on deficits is easily understood. Both sides want to buy votes; the difference is which votes. More than half the country interprets "tax breaks for the rich" simply as "tax breaks". Publishing in academic journals, or the NYT for that matter, won't improve that situation.
Democracy is not at risk. The Leftist-Globalist agenda is at risk. The fact that Leftist-Globalists were voted out of office proves that democracy is highly functional.
It is a good thing that the elites have been discredited, but it's a catastrophe that it took a con artist like Trump to do it. Make a scan all around the horizon, then move your position a few hundred miles and repeat, several times. Things are pretty good, except for that 23 trillion dollar debt.
5
This is Krugman's "I told you so" column.
I recall him saying the same thing way back in 2009, and 2010 when all the politicians and columnists were touting austerity, and he alone was saying that was the wrong way to get us out of our economic problems at the time.
Of course he was right then, and is now. That is why I so like to read what he has to say and why I trust his analysis more than anyone else's when it comes to economic matters.
May you continue to inform us and keep us on the sane course for years to come, Paul.
30
If Krugman can say “I told you so” based on his economic commentary of the last decade, so can my dog. Apart from his comments on trade he’s been on the wrong side of things, almost cheering for a recession in the face of all evidence to the contrary. Other aggregate demand types like Larry Summers have changed their tune but Krugman is still tied to the mast, resisting the siren song of strong employment data
7
The "deficit obsession" was, is and always will be a con game, unleashed by the servants of conservative oligarchy, only when a Democrat is residing in the White House, or when the issue at hand involves social spending.
Money for tax cuts for the ultra-rich and the big corporations?
Not a problem!
Money for a bloated military-industrial complex and fantastical delusions like a "Space Force" as a fifth branch of the military?
Bring extra buckets as the billions freely flow.
But food stamps for 500,000 hungry but working Americans?
Heaven forbid--the waste--oh the shameful waste.
Run a serious Nexis-Lexis search and you will see the Republican deficit hysteria is directly connected to which party is in control of the White House.
33
Nobody needs to run a Lexus search to know that.
8
Run a serious LexisNexis search (or, if you prefer, an unserious one) and you’ll see that Democrats’ hysteria over deficits also depends on who’s in the White House. Neither party has cornered the market on deficit hypocrites
4
@Doug Johnston
Keep hitting them on the food stamp issue- the ones I know are ashamed of the Republicans, whom they voted for, on this issue.
6
Umm... not exactly news, but the draw of austerity in the U.S. during a recession is simply to justify not raising taxes on rich people. Politicians have empathy for their donors, who are feeling bad because their investments are performing poorly. It is tough to see your net worth drop from $20M down to $12M. If you then try to tax those people more, well, that is just plain unfair!
7
Sounds good but not actually true. Nobody wanted to tax wealthy people more in the early days of the Obama administration. Democrats wanted to stimulate the economy through a combination of tax cuts and spending increases. Republicans opposed deficit spending during the recession because it would help the economy, and a successful economy would help the Democrat in the White House. Republicans practice a twisted form of Keynesianism: they want to hurt the economy when a Democrat occupies the White House and help the economy when a Republican does.
21
The words "federal deficit" and "debt" when they amount to 23 gazillion might sound irresponsible to the economics unsophisticated, but the fact is that it will never be repaid. To pay it would require tax hikes far greater than those proposed by Warren or Sanders.
In a crisis, those who gamble on government bonds will get a partial or full haircut, as has happened in other countries such as Greece. They are not entitled to any of our money if their gamble craps out.
5
Krugman is saying deficit spending is good, no matter how the money is spent, as long as policy, laws and regulations enrich the wealthy. That's how much money corrupts. His diatribe doesn't mention the word "recession" once, even though the Great Recession is what necessitated a tremendous increase in deficit spending that started in 2008-2009 and continued through the entire Obama era. Krugman is blind to that here. His 401(k) must be doing extremely well.
5
It's all about greed. The ruling class preaches austerity when their largesse bankrupts the very system they've ripped off, and they're subsequently threatened with increased taxes. Then when things get better they demand--and receive--ridiculous tax cuts that they won't use productively, don't need, and certainly don't deserve. Then their hands are out for Federal spending/contracts/giveaways any way they can get them. And the Beat Goes On. Endlessly.
11
The Republicans are only slightly less concerned about debt and deficits than the Democrats. The reality is all of them use the public purse to buy votes.
People misconstrue the importance of deficit spending vs debt. Both are important in maintaining economic vitality. But never ending deficits result in ever growing debt. And that is bad.
5
"The deficit obsession of 2010-2015 did permanent damage."
Yes, but it pales in comparison to the damage inflicted by the neoliberal ideology espoused by the likes of Paul Krugman, who - while critical of austerity and supportive of the welfare state - accepts the fundamental neoclassical economic precepts at the heart of neoliberal policy.
A simple rundown of current statistics would reveal to him that the striving for maximum economies of scale implies unlimited dumping, unlimited capital concentration, unlimited externalization of costs and unlimited apparent productivity, altogether resulting in high unemployment, unequal distribution of income and assets, and environmental degradation. The state of equilibrium he pretends to describe with his models is a dangerous illusion, for economic equilibrium can never be achieved without pursuing high employment levels, performance-related distribution of income, and internalization of social and environmental costs. In short, only a state of sustainably optimal welfare is synonymous with a state of economic equilibrium.
3
From reading your columns over the years on this subject, I have come to understand that in a recession, demand is down, and the only way to fix that is get more money into the economy. If the private sector hordes its cash, it depends on the government to borrow that cash and invest it in the public sector to increase employment and demand.
When demand increases, so does hiring and production by the private sector. As the economy improves, the need for borrowing decreases. This is what I have learned here. I wish more Republicans read and, even more importantly, understood what Paul writes about. But we know that for decades, as far as this issue (and many others) is concerned, they have not been members of the reality-based world.
15
Ouch! That is some strong medicine. The part about liberal elite complicity is the most painful. Democrats need to stop playing lip service to the lower and middle classes while courting the barons of Wall Street and the capitalists of corporate America. Bill Clinton, Barack Obama along with the rest of the democrats in Congress were all much too beholden to their interest in protecting the status quo over the more vulnerable 95%. Never mind the republicans. That is to be expected. Liberal elites need to learn to speak the language used outside the ivory tower and craft policies that appeal to a more populist constituency. I'm not sure that free college for all is one of them. Or as Dr. Krugman points out, the damage to the liberal elite may well be fatal.
6
Austerity, pitched as responsible and difficult in denying politically popular deficit spending that would supposedly result in inflation and a weak currency, was economically and politically disastrous, as Krugman argues. Whether it served neoliberal ideology in the World Bank and IMF or political exigency in slowing the economy so that conservatives could claim that the left had failed, it resulted in slow growth in the United States, double-dip recessions in Europe, and Depressions in southern and Eastern Europe, just as it had resulted in declines in GDP in Africa during the 1980s and 1990s. Only ideology and political parties are strong enough to sustain such empirically devastating policies for so long.
1
Austerity, a pernicious class war, wil cease when folks push back. The propaganda mill's job is to prevent that. Alas.
5
O.K., I get it. Cause a lot of pain, blame it on democrats, or better, specifically on Obama, then capitalize on the resulting rage and elect a TV celebrity who simplistically claims to be a genius who has simple answers to everything.
14
The object of the Republicans’ nihilistically cynical game is to “reduce government until it’s small enough to drown in a bathtub.” Except for corporate welfare for the rich, massive payouts to the military-industrial complex and the police-security forces needed to contain the poor and satisfy the appetite of the gun lobby.
Then they’ll cry “deficit!” and scream about “the burden on your children” imposed by “reckless government spending” – i.e. on whatever remains of the shredded social safety net.
So eventually the poorest will be forced to work for slave labor wages in an owner-take-all economy. And the “middle class” will be lifetime captives of the vicious gig economy, working at multi jobs to keep a roof over their heads.
That will work very well for the .01percent controlling the economy. Until all that’s keeping the consumer wheels turning is credit card debt. Then…we know how this ends.
10
Impossible! I know very well that our economy is fully and (perfectly) recovered under the guidance of the trump. How do I know? I'm 76 and just last week I received my annual notice from the Social Security Admin and, you guessed it. We're all getting a raise next year. $20 a month. So there.
3
Dr. Krugman,
The extreme politicization of economics in our country began with the American Revolution, continued with the Civil War, and resurges again in the 21st Century. Political behaviors respond to economic forces that are invariably connected to powerful persons [read corporations as "persons" these days]. The aggregate of "Government" representatives are responding to the needs of the most powerful constituency they are elected by: Republicans by Capitalists, Fearful White people, and Oligarchs; Democrats by Capitalists, Fearful/Idealistic Brown & White people, and Organized Workers. The public is fed whatever propagandas suit the groups these parties have in common, such as austerity for the poor and extra money (tax reductions) for the rich. Any capitalistic group can have greater say in politics than what is good for the general public. E.g., The Democratic House dropped a bill to deal with "Surprise Medical Billing" because organized Medicine complained. While I expect this note on "How It Is" to be buried as an entry two days from now where no one will see it, I address YOU to explain the whole collection of players rather than just the most egregious currently running rampant over Americans today.
2
@Mike W
"The extreme politicization of economics in our country began with the American Revolution..."
It might be said that just about everything "in our country began with the American Revolution," seeing as "our country" didn't exist before the American Revolution!
2
@Mike W (" ... famous quotes of Anatole France (the pen-name of Jacques Anatole Francois Thibault, 1844-1924), winner of the 1921 Nobel Prize for Literature and supporter of the French Communist Party (he was French)")
"Nowadays it is a duty for a poor peasant to be a soldier. He is exiled from his house, the roof of which smokes in the silence of night; from the fat prairies where the oxen graze; from the fields and the paternal woods. He is taught how to kill men; he is threatened, insulted, put in prison and told that it is an honor; and, if he does not care for that sort of honor, he is fusilladed. He obeys because he is terrorized, and is of all domestic animals the gentlest and most docile. We are warlike in France, and we are citizens. Another reason to be proud, this being a citizen! For the poor it consists in sustaining and preserving the wealthy in their power and their laziness. The poor must work for this, in presence of the majestic quality of the law which prohibits the wealthy as well as the poor from sleeping under the bridges, from begging in the streets, and from stealing bread."
https://everything2.com/title/The+law%252C+in+its+majestic+equality%252C+forbids+the+rich+as+well+as+the+poor+to+sleep+under+bridges%252C+to+beg+in+the+streets%252C+and+to+steal+bread.
4
@Joel
I consider the "Colonies" to have been "our country" before the Revolution.
1
But the elites have shown again and again that they don't know what they're doing -- going back all the way to Vietnam. It's not a recent phenomenon, although the record in the Bush II years was particularly egregious. The elites have failed again and on questions of war and peace and on economics; the track record since about 1950 has been, over all, abysmal. Combine that with the fact that the elites look down upon the average Joe and Jane, and of course a populist revolt had to come. It's not just about the 2010s.
4
We could have gotten a taste from the Reagan era. Then again, Republicans told us that deficits were terrible and Medicare and Social Security had to be cut. Reagan then pushed a huge tax cut and immense defense spending. The deficit ballooned and thanks to the Keynesian pump priming the economy growing under Carter took off under Reagan.
3
That’s rich - not only does Obama get credit for the economy 3 yrs after he left office, but now we say that Jimmy Carter set up the 80s boom. If you really believe that Presidents control the economy (I don’t) maybe Democrats should call Bill Clinton to learn how to have a good economy while they’re in office rather than just priming the pump for their Republican successors.
1
The 2017 tax give away has resulted in perhaps an additional 300 billion dollars a year being added to the federal deficit. The cost of servicing that added debt has been muted by the historically unprecedented low interest rates which may turn out to be liability if interest rates go back to anything like their historical norm.
Krugman is right in saying it like it is, Republicans are good little Keynesians when they get in power and deficit hawks when out of power. By injecting that 300 billion into the economy it has led to more employment , but not better wages or a better standard of living for most working Americans. It has, however, had a salutary effect on the stock market and the paper fortunes of the wealthy class which has most of their wealth invested in stocks. This is an economy which is all smoke and mirrors and it now depends on debt fueled cash infusions like the 2017 give away to corporations. This is not a sustainable model (cash to the corporations) for healthy economic growth and the well being of any segment of our society except the top 1/10 of one percent.
7
It should be made clear that this was selective austerity -- the austerity of the 80%. The rich played and spent and spent some more, backed by all the financial engineering the Fed and Treasury could bring to bear on their behalf.
While ordinary people struggled to come up with the (regulatory mandated, oh-so-responsible) 20% down for a home, those who could swing big got as much money as they wanted, at practically zero interest. Want to buy a home? Tough luck. Want to buy 1,000 of other people's former homes? Come on in!
7
Mnuchin.
4
OK, so the 2008 financial crisis was caused by politicians (of both parties) accepting the GOP notion that an unregulated financial sector would be far superior to the post-New Deal consensus. Then, the GOP used deficit polemics to oppose any Obama era programs that would have benefitted the poor & middle classes, further impoverishing vulnerable Americans during the fiscal crisis. Then, upon taking power, GOP forgot all that deficit stuff & passed a tax bill that massively benefitted corporations & the wealthy. At the behest of its oil/gas/coal company patrons, the GOP has--pretty much singlehandedly--delayed, deflected, and defused any effort, internally or internationally, to solve the climate crisis. To maintain its hold on power, the GOP has repeatedly, in state after state, taken action to suppress the vote, especially among African-Americans. So why does any American who is not BOTH pathologically selfish and in the top 3 or 4% of earners/wealthy in this country vote for them?
5
Preach it, but at this time only the choir is listening. November will let us know if enough people are listening.
3
“Debt fears were used as an excuse to cut spending on social programs, and also as an excuse for hobbling the ambitions of (the) center-left “ … succinctly sums it up. Smoke and mirrors, hypocritical posturing, delusional thinking, odious diatribes, pious harangues, self serving invectives … pick your favorite description for those who laid the groundwork for austerity.
Remember the old UNCF ad campaign slogan, “A mind is a terrible thing to waste.” This landscape is littered with waste, in particular right wing political think tank waste. One only hopes there will be some accounting for the self serving, destructive policy proscriptions that emanated from the likes of the Cato Institute, etc..
Time for us all to wake up!
Thanks Doc K … here’s to a better 2020!
8
Austerity was the Republican Senate's way of accomplishing two goals. Trying to damage Obama's first term by blaming him for the slow growth, thus ensuring a Republican President. And secondly, by keeping deficits down the rich didn't have to fear tax increases in better times since spending was held in check. The repercussions have been enormous and the burden put squarely on the poor, immigrants and the middle class (all groups that tend to vote democrat in most elections) it was not felt by Republican boosters who have enjoyed tax cuts, an ever inflating stock market and cheap money. Austerity has always been the ultra wealthy's economic utopia.
4
At the risk of sounding conspiratorial...I'm pretty sure that some very well heeled libertarian/conservative folks invested heavily in the years after '08 to destroy American's confidence in our institutions in general and in Government in particular. Why would they do this? Quite simply, government institutions had just rescued our economy from near disaster and there was a real threat that the average American would start to see government as a force for good in their lives. Why would this be bad for those well heeled folks? Taxes, regulations (particularly environmental) dramatic action on global warming, really effective health care reform, serious investment in education, particularly in reducing higher education costs and eliminating the trillion or two in student debt on which they collect interest, so many things that could help the average American while harming the bottom line of the heavily vested.
7
Krugman is a smart, well meaning person. He was certainly right about austerity during the recession. However, there are many red flags waving about traditional economic "think" he is espousing.
The first and most obvious is our artificially low interest rate - the thing propping up this economy and the market. When the time of need comes (and it will), the Fed will have practically nothing to control an imploding economy.
The second is Krugman's apparent belief that deficit spending by government is the only way to achieve prosperity. We should certainly be spending now on our infrastructure (we aren't), but in good times we should be refilling our coffers, not emptying them.
The third and most consequential of all - as Greta Thuneberg points out - is our economic theory based on continual growth is clearly unsustainable. The world's human population cannot keep growing ad nauseum, we cannot continue our model of disposable everything, and human success cannot be based on continually producing more and more. We are literally destroying the climate and ecology we depend on for life, and we are destroying most of the other life on the planet.
So although Krugman is trying to do the right thing, he's stuck in old-think that is quickly destroying us. It's time to reset our thinking before the disasters we are precipitating - both short and long term - reset us.
4
Whenever I hear this argument that there are too many people on the planet, I always wonder, “Who do you propose we kill?”
1
Honestly, I don't think the right wing cares a bit that austerity doesn't actually work. In that it is no different from many of their other policies (just look at the GOP health care plan -- oh wait, there never was one).
They want to serve their masters: the rich and the powerful. Austerity does that because presents opportunities for private wealth to make more profit (including stepping in where government has shrunk) and for those in power to exploit and manipulate the average person, who is now just a little more desperate and vulnerable.
5
Paul Krugman's article is such a relief!!!! Of course austerity hurt us badly. The Tea Party response on the right dominated the airwaves; but the People on the left just stopped voting. The greed (and sleep-walking) of the elite is the worst betrayal of democracy. Causing the people to tragically throw it away. That's what austerity has done globally.
237
@Susan Rankin I think the austerity narrative is a red herring. The elites and corporations have stopped paying their fair share. And it’s getting worse, not better (Trump tax cuts). Spending borrowed money as if the gap between the amount raised by the IRS and what is needed for quality infrastructure, public services, healthcare etc. does not solve this deeper issue.
19
@Susan Rankin Exactly my response! It is wonderfully refreshing to see a cogent and learned explanation of what I understand and believe about economics, particularly here in the US.
One point that is tandem to Dr. Krugman’s and I feel deserves attention, because it has clearly corroded support for social programs and sown the seeds of discontent in all things “government,” is of course Grover Norquist’s anti-tax policy plus his “pledge.” It is past time for the Dems to develop spine and remind one and all that functioning democracies rely upon taxes to survive AND each of our tax payments represent our “entry tickets” to the big tent of democracy.
51
The road to serfdom is paved with lies, disillusionment, and ignorance. The serfs will soon learn how misled they have been.
But, will it be too late??
5
We cannot trust elites or government. Disclaimer: would be classified one of the former and worked in minor positions in the latter. But I never trusted plutocrats or the career bureaucrats they cooped.
Wall Street is a cesspool, filled with people who create nothing but exotic, fraudulent paper and Ponzi schemes. Then take home the bulk of their income on which ordinary Americans pay regular income taxes as “carried interest”, taxed at capital gains rates.
To adapt an old saying, whenever a plutocrat or career bureaucrat or plutocratic lobbyist dies, an angel gets its wings. So do those dying, but theirs are the wings of demons, appropriate to the domain in which they will hopefully reside for all eternity.
4
Once again, these were Republican problems, created by Republican policies, along with Republican mendacity, racist vilification of Obama, slavish obeisance to their plutocrat owners.
Get rid of Republicans, get rid of Republican fiascoes.
NO REPUBLICANS in 2020! NONE! NOT ONE!
7
You elided the subject of left-wing populism a la Sanders and Warren. Sanders' popularity was born in the Occupy Wall Street movement. Absent OWS, Sanders would still be just a gadfly Senator in a small rural state. Now he has national stature, and his demagoguery has become normalized. People aren't satisfied with incremental improvement anymore. They want the whole enchilada, logic and process be damned. It has become a zero-sum contest between left and right wing snake oil salesmen. And that's the shame of it. Anybody with sensible ideas who doesn't already have a large following a la Biden doesn't have a chance. Obama wouldn't have made it to the third debate in this Democratic primary.
2
The consistency of Sanders is neither a new trick nor a flash in the pan. Suppressed by the overwhelming weight of money and by inertia, it’s been around since the advent of electric light- what might be called the electric Enlightenment.
I dreamed I saw Joe Hill last night.
1
Esoteric, verbose and pedantic.
Let me put it imo what history has taught us and who knows I may be agreeing with you.
With the modern Fed, we were able to prevent another Great Depression till about 2007 and even then it was not as bad.
All the fed can do is stimulate in bad economies and lower the pressure cooker on heated up economies.
Nothing more or nothing less.
Due to human ignorance and greed, a country can still screw it up like the republicans and democrats did and in 2007 the whole ball of wax imploded.
We are doing the same thing now with record national, student, corporate and credit card debt.
It is gonna implode the only question is when and how bad.
1
Egads, I am sooooo tired of hearing about "Elite" people. Exactly who are the elite's? Are they Billionaires, Rush Limbaugh (rich dude), Sean Hannity (rich dude), Progressives in Oklahoma City, or are we just making this up to mean something it dos not.
5
Yes, Mr. Krugman, the austerity myth is a cockroach that can't be killed. I believe you've likened it to zombies -- another apt analogy. Meanwhile the IMF and World Bank pay good salaries to their emissaries who run around the world imposing this baseless philosophy on broke countries too weak to scream. And education doesn't seem to be the answer because those emissaries tend to have impressive academic credentials.
185
This situation has happened before, is happening now, and will happen again. The cycle is broken only through horrific suffering, but then starts anew. I really wish it wasn’t true, but my reading of history says it is. The characteristics of human nature acquired over thousands of years do not go away and attempts to control them through social norms are flimsy at best. Progress is glacially slow.
4
I've always thought the denouncers of government debt were wrong. Even when you compare the nation's budget to a household's, would we ever be able to buy a house or a new car without debt? True this is secured debt, but isn't infrastructure spending as well? Those government buildings, bridges, railways and roads are worth a lot.
1
Over the years, I have spoken with enough Republican policy makers to believe that there are two schools of thought. Some wanted to sabotage the recovery in the hope that the voters would then throw Obama out. Others, simply have chosen to believe their own nonsense no matter the evidence or economic consensus. (Many have chosen to believe their positions on global warming, deregulation and other ideas as well despite often fairly incontrovertible evidence.)
In Republican administrations they expand government and cut taxes to juice the economy to win another term. Even those who have internalized the idea that debt is bad will, muttering under their breath, vote for a Medicare Part D if it might win them the next election. They later tut tut about what Bush did wrong while enjoying the perks of their House or Senate seat.
1
I woke up at 4 AM and turned on the tv and heard about the attack on the Baghdad Embassy. I don't know which country was doing the reporting but it was wonderful listening to someone who actually knew history.
The reminder that Beirut was allowed to destroy the Carter Presidency and that in 1983 the failure of the Reaganites to resolve the conflict in Lebanon after the bombing of the barracks was part of this conflict. Saddam was the perfect buffer he was hated in Riyadh and Tehran.
I am beginning to think economics is more theology than science. It is way beyond human understanding and has little relevance in a society that doesn't understand thousands and serves those who control the gigs.
I remember the end of one school of Kabbalists whole tried to turn all the words into numbers to better understand the universe. I am in awe of Steven Pinker a linguist and scientist who turns the numbers into English. Maybe the mistake economics makes is looking out instead of looking in.
2
Although we can state that spending by government is not equivalent to spending by individuals, and that a Keynesian spending policy is the way to go, one has to always remember that deficit spending comes with a repayment promise that can easily overwhelm any government. Whether we are close to a tipping point or not seems to be typically determined in retrospect. I, for one, would prefer a system of fair initial distribution rather than one of government imposed redistribution. I would also worry that ever increasing federal debt (and debt service) should not be taking place in a good full employment economy. It does seem that we are not measuring all economic factors correctly at this time.
1
Every economist, save few, do advocate or at least know of to spend more during depression to climb out of it. It is selfishness of politicians and some economists try to exploit the situation to gain power and wealth argue otherwise and spell poison pills to vulnerable people. The main media publish both sides without any bias to the right thing to do. That opened up opportunities to the so called centrists whose policies simply prolong the suffering. I do no understand why anybody would want to vote for someone who can't take a stand on any policy, even though they are aware the country is heading in the wrong direction. The culprit is main stream media whom the great majority of Americans trust.
1
"There are multiple explanations for the populist rage that has put democracy at risk across the Western world ..."
Populism is not a cause, but a result of our corrupted "democracy". Our pay-to-play government no longer works for 90% of the people. It has utterly failed to solve our problems or make our lives better.
3
There was no "wrong turn" or "mistake" in policy. It was deliberate. The Republican/Conservative/Evangelical Axis takes its strength from the poorly or non-educated, those in poverty or on the verge and the 1% who need those low-wage earners, just like China is doing. It has never been an accident that the "right to work" states are also the ones with the lowest educational and economic achievement. After all, those foreign car companies did not build in Alabama, South Carolina and Tennessee because of the brilliance of their work forces. Those states promised and delivered low-wage workers. It is also important to watch that those R/C/E Axis elites are also raking in the millions that generate the huge budget deficits, just as they did with the tax cuts. Then, once again they will claim a need to cut back anti-poverty benefits, because THE DEFICITS! What we have to prevent is them convincing the Democrats to show how smart they are by actually buying into that argument and paying it all back on the backs of the people who elected them. Right after that the R/C/E Axis will proceed to highlight to all those low wage and low education people that it is the Democrats who are causing their pain. This cycle has to be broken NOW. NOW, NOW if we don't want to live in the wealthiest banana republic on the planet. I am counting on you Mr. Krugman to stay on the horn.
1
Thank God we now have a President who doesn't give a damn about the deficit. Oh, wait. . .
2
I worry - deeply - about the debt (not so much the deficit). Debt doesn’t disappear when we die, it gets passed on to future generations. I agree that austerity in the time of crisis is a spectacularly bad idea, but when the economy is humming, the higher tax brackets should reset to start paying down debt.
I know it feels great to pile on the comments bashing politicians who worry about debt but my guess is that those doing it are not under 30.
3
I guess I never heard it put quite this way before. Brilliant connecting of the dots, Paul.
Specifically, no one I have seen (and nor have I) said out loud before that the push for austerity during governments controlled largely by progressives was done to weaken progressive policies and thus alienate the potential beneficiaries of those policies to urge them into the camp of the right wing. It's so obviously true, but somehow I missed it all this time.
The economic policy of austerity is the excuse to allow political overthrow of progressive promises and hopes. It's been done so many times to great effect. Even the rise of Nazis in Germany benefited from this same approach. Austerity was imposed from outside, so a cult was established to counter it, and war followed.
Today we see the rise of the MAGAs as responsive to the denial of their dreams, tinged with jealousy and fear of POC who might be using some of their "birthright" to best them, or replace them. And the blame goes to the progressives who were thwarted in their desire to improve the country (including specifically its MAGA base to benefit) because fake budget hawks thwarted attempts to create infrastructure for the future of America. Instead these same fake budget hawks allowed Trump to spend more on bailing out farmers to cover for his tariff-induced trade war of choice (28 Billion so far) than Obama spent on bailing out our Auto industry (12 Billion), and spent trillions on tax breaks for the wealthy.
2
"Fortunately, economists had learned a lot from the experience of the Great Depression. In particular, they knew that fiscal austerity — slashing government spending in an attempt to balance the budget — is a really bad idea in a depressed economy."
OK, Paul, here's a counter argument:
https://fee.org/articles/the-depression-youve-never-heard-of-1920-1921/
1
And would we have Trump if years of wrongheaded austerity hadn’t delayed economic recovery under Barack Obama?"
The truth is, Obama capitulated to demands of austerity frequently.
https://www.theatlantic.com/business/archive/2012/02/barack-obama-austerity-president/252319/
1
Yes its a lot easier to sell xenophobia to people who are hurting (desperately looking for someone to blame for their pain).
3
I don't think our unemployment is really that low if one considers the number of people who have left the workforce.
I bang this gong a lot. If one looks at the attached chart, one can only wonder: what are the people who were working in the '90s but aren't working now doing? Did they all just retire? Are they hanging out on welfare? Living with Mom and Dad? Working gig jobs that somehow aren't counted in labor statistics? Living under a bridge?
I've read in this very newspaper, complaints by 50-somethings that they just can't find work in their old careers.
The problem hasn't been fixed. I've read "everyone who wants a job, has one", or two, if you earn minimum wage, but what if someone has been, say, jobless since '09? What if they wanted a job? Would an employer take the risk, hire them to flip burgers? Answer phones? What's driving these "deaths of despair" in the middle aged white crowd I read about?
Hello?
https://www.statista.com/statistics/191734/us-civilian-labor-force-participation-rate-since-1990/
3
We suffer from a cultural tendeny to celebrate greed so anyone who gets a little power or leverage uses it to geab as much as possible and there is no good future when it's a feeding frenzy out there. We also suffer from a deficit of empathy for our fellow citizens, which gives license to cheat and grift and indulge our worst impulses. in other words we suffer from a spiritual crisis of national scale. Even so-called "Christians" have embraced and celebrate sins they used to condemn. We are a fallen people led by the worst of us, a consumate grifter/showman who treats civics as a pro wrestling spectacle, "You elect an antichrist you get an apocalypse".
2
Dr. Krugman, or Msr. Cassandra, touche...we told them so, didn't we? As well as my grad school comrade Mark Blyth, with a most adroit observation in his "Austerity: History of a Bad Idea", that every single country already in deficit when they attempted austerity, was further in debt when they finally saw its detrimental effect. Salutations, Dr. Jeffrey A. Stacey
1
Tell this to Speaker Pelosi with her PAYGO.
1
There’s of course the fake psychological and hypocritically “moral” aspect of this: the idea that poor people are poor, sick people are sick, as a result of their own failure (and conversely, therefore, wealthy people are wealthy because they worked SO hard for it, and did it all by themselves).
So the ideology of austerity and psychotic fear of social indebtedness is all built upon the principle that laziness, lack of family values (not being Christian, in other words), and general bad character should be punished, not rewarded with social benefits.
Until people learn the cruelty and idiocy of this criminal ideology, we’re stuck with susceptibility to these arguments.
3
Thank you Paul Krugman, this is so correct, if tragic. It is because of your ability to bring such analysis to bear on the confusing issues of our era, that I created a catelogue for you at my blog, InconvenientNews.net called:
Paul Krugman: the Oracle from MIT, Yale, Stamford, Princeton & CUNY.
I remember when you begged Barak Obama and his administration to double thier stimulus spending, from about .8 to 2 trillion.You wrote that the depression was so great, that it would take a big stimulus to get the leviathan ship of state moving again in the water. If they had taken your advice then, we might never have suffered the world set back of Trump’s immature, self-centered and corrupt excuse for world leadership.
2
New Yorker cartoon:
A field of sheep grazing, overlooked by a billboard featuring a wolf in a suit and the slogan: I AM GOING TO EAT YOU. One sheep says to another: "He tells it like it is."
reprinted in the Dec. 30, 2019 issue, p. 55
5
Yes, the collapse credibility is an important and often ignored aspect of the current rise of right-wing extremism. It was instrumental in the rise of, first, hard-left and then hard-right extremism in the defeated central powers after WWI. The communist Spartacists of 1919 polemicized against "the educated" who had kept the working classes in the dark, and the embryonic fascist movement did the same.
Hitler was a high school dropout who failed to get promoted to Sergeant despite his Iron Cross, because his civilian career or lack thereof made him ineligible for what his superiors in the Bavarian army called a "leadership" position. After Germany's defeat, this turned out to be a boon. Hitler and his supporters stressed over and over again that he had just been a lance corporal, and a "man of the people," and anyone who studied German and Austrian fascism will notice an extreme strain of anti-intellectualism and anti-elitism.
1
Yes, that’s right!
1
We are in a mess because pf a turn in policy taken a decade ago.....; and so what now...Professor Krugman ...tell us how to
find a way out of this mess...
There is the explanation given here for the mess we are in;
but Professor Krugman has no explanation for a way out of
this mess; hopefully other commenters have some ideas for
a way out of the mess we are in.
2
Yes, the collapse credibility is an important and often ignored aspect of the current rise of right-wing extremism. It was instrumental in the rise of, first, hard-left and then hard-right extremism in the defeated central powers after WWI. The communist Spartacists of 1919 polemicized against "the educated" who had kept the working classes in the dark, and the embryonic fascist movement did the same.
Hitler was a high school dropout who failed to get promoted to Sergeant despite his Iron Cross, because his civilian career or lack thereof made him ineligible for what his superiors in the Bavarian army called a "leadership" position. After Germany's defeat, this turned out to be a boon. Hitler and his supporters stressed over and over again that he had just been a lance corporal, and a "man of the people," and anyone who studied German and Austrian fascism will notice an extreme strain of anti-intellectualism and anti-elitism.
1
Impossible.
If government stops borrowing money, the money does not vanish; it is invested elsewhere.
So, as you say, if my spending is your income, and vice versa, if I can’t lend the $$$ to the government, because the government doesn’t need/want it, I put it somewhere else. Net result: at worst, 0.
So, logically, government deficits cannot aid the economy as, at any given time, there is a fixed amount of money to be lent/spent. Anything the government takes, whether through taxes or borrowing, is money not spent or invested elsewhere.
This is akin to the fraudulent “multiplier effect”, which contends that if government takes money from me and funds food stamps, that $ someone becomes $$$$. It’s utter nonsense.
Too, you demonstrate that tax cuts do not produce deficits; it’s “spending growing at a rate not seen since the early years of the past decade” which produces the problem. And, sooner or later, that $ has to be repaid. (Yes, it really does.)
And what, precisely, is “austerity”? If you accuse BHO of being “austere”, you’re beyond help.
Leftist economics is one big exercise in Panglossian smoke and mirrors. The author has been wrong about essentially everything for as long as he’s written for the NYT. At least, here, he got one thing right: tax cuts do not produce deficits. Obscene spending does.
And, yes, we SHOULD be worried.
1
This ignores that food stamps not only provide food, but save society other social costs. Better fed children do better in school, get better jobs and cost society less in prison and healthcare costs.
1
The dems fertilize the garden and the repubs harvest it...
2
Perhaps a look back at the 1930'ws?
1
Isn’t it nice having all this money flowing into our 401ks? I don’t see any improvement to infrastructure for long-term benefit to the country, but darn the corporate tax cuts and wild deficit spending have sure helped me personally. It seems a stupid move for the country as a whole though. But Trump’s wealthy buddies are laughing, and enough never-Trumpers with 401ks might change their tune come November. Like I said: stupid for the country as a whole. Not as stupid as the Syria give-away though. People seem far too distracted by money to see the wrecking ball for what he is.
3
What Obama recovery? The recovery in employment for ibanking types unemployed in 2009 and 2010?
That's about the only Obama, or Trump recovery.
Now Google and Facebook massively expanded, and they pay decently, for the most part.
Everyone else didn't experience that Obama recovery. Unless recovery means making barely more than minimum wage.
It's not just republicans who pushed the "there's no money" garbage. Obama did in 2011. Remember Mr. K, Obama was set to cut Social Security in 2011.
2
I believe Friedman's Shock Doctrine is being applied all over the world. Make people bleed, scare them with the death and bleed them a little bit more. For example in the UK Brexit is doing the job of shock. When Brexit separates the UK from the EU next year, economy and people suffer than the Conservative Government will say "You are bleeding out there. Bad free tared with the US better than no free trade." and sign a horrible trade deal with the US and after that working class will suffer more.
2
GOP tax cuts to the ultra wealthy transform productive capital into dead assets producing nothing. These folks are not 'job makers' and nothing 'trickles down'. GOP economic ideology is a lie strewn together as a fantasy.
6
Way to go! A 30 trillion mortgage (national debt) is no problem for the mighty USA to carry. After all, who would dare to foreclose on us?
Austerity will not feed the hungry but will surely nourish the greedy. Let the good times roll.
2
One reason I continue to support Elizabeth Warren is she understands the weaknesses in our economy and how to fix them. While Saunders also understands those weaknesses, he has not fought as hard during his years in the Senate to find viable solutions. Warren has worked to protect consumers only to see her work greatly undermined by Trump and Republicans, for example.
Republican actions throughout the last decade have been very destructive of our economy and varied ways of life. They have built a successful economic model for billionaires only. The rest of us are expected to take low-paying jobs to support their profligate life-styles (think Epstein). That economic model never works, as Dr. Krugman has correctly written.
Economies run through cycles and good government prepares for downturns that will eventually come and don’t give away the store to every con man that comes with his hand out, which is what is happening now. There is a great difference between spending tax money on boondoggles like useless walls and using it productively to increase citizen wealth. Just counting pennies while carelessly throwing away dollars, which seems to be the Republican economic policy, is the sort of monetary policy that leads to scary inflations seen in banana republics. All tax monies should make a difference in the tax payers’ lives, like sound environmental protection, housing and health laws. That produces a country’s wealth, not playing favorites or denying reality.
3
I am kind of old, 64, so I remember the ‘good ole days’ in the early 80’s.
Home loan 15%
CD 12%
Oh, did I mention we had an infant. With a $2000 medical deduction.
Yes, we managed to save and make some money with that CD, but we also lived a very austere life because of the home interest rate.
That was a screwed up time.
This is a screwed up time. Interest rates are too low and there is no incentive to save.
1
Many people don’t make enough to save anyway.
3
The best cure when there is a slack economy and one of America's greatest needs is infrastructure building and rebuilding. An example is the high speed rail project between Chicago and St. Louis that was touted by the Obama Administration and was allocated billions. The problem is it is neither true high speed rail or is it yet complete. Many worthy infrastructure ideas languish in court cases or other government regulatory processes that send big job intensive projects into a "not really shovel ready after all" limbo that can last years. The black hole of many defense department weapons systems and other military industrial complex waste is rivaled by the infrastructure stagnation syndrome where progress is minimal at best. The underground vacuum tube ideas of Musk and others in the private sector have potential to be a quicker solution, but it is not that many years since the idea to do another expansion of the size of Fermilab's syncrotron rings was opposed by above ground landowners, and never materialized. One of the downsides in "the land of the free" is that establishing a working consensus is painfully slow when so many divergent players can scuttle meaningful progress, and when there has been plenty of property that has been sold to foreign buyers that can have other interests in mind, the situation gets muddier still. So in the end the net effect of much well intentioned stimulus is a malaise that has the feeling of austerity due to the mindnumbingly slow pace.
2
@Scott: "An example is the high speed rail project between Chicago and St. Louis that was touted by the Obama Administration and was allocated billions."
Has there been any study to indicate the rail line would be economically viable without any government subsidy?
1
Large infrastructure projects take years of planning and design. They were never going to be shovel ready quickly Anything that was at the point of being shovel ready already had money appropriated for it and has been in the works for years.
1
Of course the Republicans are responsible for all of this. But, as Mr. Krugman points out, it was the Democrats who let them get away with it. Both Clinton and Obama bought in to all the austerity crap. So did a good many in Congress. And let us not forget the great gullibility of the American people. As has been amply demonstrated over recent years, little things like facts and good policy really don't matter in America anymore. All that matters is what can be sold to the populace, usually what drives them emotionally. And let's face it, the Republicans are simply a lot better at such deception. They've had decades of practice and decades of success. Today's America is the result. Trump is the result.
3
Becoming honest may require a language upgrade or new words or terms.
The last decade's austerity--and the previews that came before it--would be more accurately described as follows:
"we really don't care about the people and what they need"
That's what austerity means now.
6
Perhaps the simple answer is that austerity is, yes, bad, but so is extravagant spending. If the nation can avoid periods of extravagant spending beyond the yearly increase in GDP, then fine, there is no need for austerity.
1
I was speaking about this with a friend of mine last week: namely, austerity policies in Europe have contributed to the Euro-Scepticism currently affecting many members of the European Union.
The Great Recession was followed by a sustained, though very tepid recovery (in both Europe and the USA). It was a recovery that was not felt by all, but experienced disproportionately at the very top. Although jobs are plentiful, they do not pay as well as the ones that existed before the bubble burst.
In Europe, those most affected by the recession (the middle and lower classes) pointed their fingers to financial elites, not without reason. The austerity measures enforced by Brussels and German banks were seen as the culprits of the current malaise, begging the questions: Who does the single currency REALLY benefit? What is the point of the EU?
Voters in England have already given their verdict via Brexit, even at the risk of reigniting Scottish calls for independence. You can expect further fragmentation and less cooperation in Europe as a by-product of past austerity measures with the consequent resurgence of populism and nationalism (see the rise of ultra-nationalism in Poland or the fragmentation in Spain).
The final casualty of austerity could be the EU itself: a superb result for Mr. Putin.
3
I would love to understand the pros and cons of Keyneiam. In our perdonal lives we do understand not be in over our heads in debt. What happens in the life of a nation? That too not all nations are made equal. US has countries itching to come invest which allows it to run large deficits. Can Spain do that? Is there a good and a bad example of this policy?
PS: love the term Scam Artist used explicitly. #realScammerTrump anyone?
1
There is no one who epitomizes my pessimism in the survival of the USA better than John Bolton. Looking at a policy of austerity in Hard Times is nothing compared to being a war hawk in a party with a voter base dedicated to isolationism and only transactional foreign relationships.
I am still amazed that your media failed to report the disconnect between the isolationism of the GOP base and the militarism and global interference of the military industrial complex.
For Democrats it must be difficult fighting oxymorons.
1
Okay, I can agree with this assessment. But let’s not discount the effect of reforms in Spain and Portugal, which are now booming and more compatible with Northern European economies than ever. It wouldn’t have been politically possible without some tough love from Europe.
And I can’t stress enough that the EU is similar to our US States: Everyone in Greece can legally move to and work in Germany, the Netherlands, ... just like people here move to the cities in other States. Nobody complains about the strong dollar or unemployment in Alabama. Economists need to stop focusing so strongly at individual countries within the EU. In some cases it’s very misleading, like the highly integrated greater Ruhr economy that includes Belgium and the Netherlands. Their ports warp trade balances (e.g. US trade surplus with Belgium/Netherlands, deficit with Germany).
Keynesianism is supposed to smoothen out peaks and dips in the economy, borrowing is stealing economic ammo from future presidents. In the case of Trump we do need to recognize that cooking the economy seemed somewhat useful to trigger wage inflation, which is now only kicking in years after Europe due to the dismantling of collective bargaining here.
2
As a subscriber of this principle that government investment can drive economic expansion, I often look at world events with a glass half-full perspective. And while I agree that an alien invasion would compel a global stimulus, my sources say that's unlikely. Can the climate crisis be our alien attack?
1
Well, you know, I used to think of Mr. Krugman as my "economic guru". I depended on him to help me form my opinions on macro-economics. But I wonder. He has said many times that Mr. Trump's policies would be disastrous for America, but when is that going to happen? Right now, one of the strongest cases Mr. Trump can make for another 4 years is the economy. Stocks keep going up, and up, with no limit in sight, and unemployment is at record lows. We keep hearing that "most" people are not benefiting, but when I look around my neck of the woods, people seem to be at least as well off as they used to be. There is no obvious increase in want or poverty. Everyone that wants a job can usually get one. Housing developments are ruining good farmland almost as fast as the Amazon Rain Forest is disappearing. New shopping areas are going up everywhere. The only "bad" thing we can say for sure about Mr. Trump's economic policies is that the deficit is going through the roof. But according to Mr. Krugman, that is in fact a "good" thing if you want to stimulate an economy. The economy seems stimulated. So which is it, Mr.Krugman? Has Mr. Trump swallowed your advice hook, line and sinker?
6
From a wiser economist than Prof. Krugman:
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
Ludwig von Mises, Human Action [1949]
1
Some other things "traditional [US] elites" have been wrong about:
Invading Iraq, banking deregulation, a post industrial economy, speculation in place of productive investment--this led directly to the 2008 crash, the popularity, effectiveness, and savings of single payer medical insurance, worker training is specific tasks being a replacement for teaching thinking, and many other things.
2
Paul Krugman also during those years said that the time to cut back on the deficit is during times of prosperity. We're now at the boom phase of the business cycle, and there is no effort being made to move to a balanced budget. Trump and the Republicans doubled the deficit with the 2017 tax cut alone. But where is the discipline to enforce PayGo from the Democratic side of the aisle?
The interest on the national debt will be a third of the federal budget next year. Sure, interest rates are low right now, but will they stay that way?
2
As I read the comments to Paul’s editorial, which of course is dead on, I see that we are beating up on Republicans and conservatives as we should. But let us not forget that Obama pivoted from jobs to the deficit and establishment Democrats became “Very Serious People”, hewing to the right. And you hear echos of it from the moderates in the Democratic debates. So maybe the fault should be spread a little wider than the comments indicate.
8
@Stephen Lightner
Thank you for making this important and overlooked point. I wish Krugman was more willing to use his podium to challenge the Democrats and to hold them to a higher standard. The problem all these years has not been one-sided; the Democrats' now lengthy history of tilting to the right and lending credibility to bad Republican ideas and policies has served the country very poorly.
3
The "serious mess" must be laid at the feet of a thoroly corrupt Republican party that, as Paul more than implies, swung from one extreme to the other vis austerity and budget irresponsibility. Whether you buy Paul's liberal analysis, neither extreme--and party self-dealing to boot,mirroring Trump's moral failure--is commendable. And because the Obama/Geithner administration didn't shine any considerable lite on the corruption of W. Bush era dealings, we hardly have a reliable conventional wisdom of the Great Recession of 2008-9.
Is there some way for the center and the left to marginalize the economic corruption of recent Republicanism? It'll have to start by a thorogoing defeat of "the Great Divider" Trump's party at the polls in 2020.
2
When you allow the banks to take American's home and others to take their pensions and savings, it's no wonder the pitchforks came out for change. Unfortunately, many were unable to differentiate between change and a con and they still are.
3
Homeowners took the banks’ money, not the other way around. As to retirement savings: Investments in the stock market are worth more than three times as much as they were prior to the 2008 crisis (and more than five times what they were worth at the low point in Spring of 2009. Unless people panic-sold at the bottom, they’ve done very well despite the market decline in 2008/9
2
@RobtLaip Only about 50% of Americans are even able to invest in the stock market, the rest are not able to afford a $400 emergency. Banks foreclosed on some who had pay 29 years on a 30 year montage.
Many Americans ready to retire have no pension and very little savings. Thankfully I am not one of them and yes the stock market has been great in 2019 for those of us who can partake.
5
So the Great Depression was an inadvertent mistake by policy makers out of ignorance, while Republican deficit hawks deliberately undermined our country to produce the chaos of a Trump presidency ?
Can we impeach/dissolve the whole Republican Party ?
1
Like some others comments said, my only problem with everything you wrote is that enough people aren't going to read it. This, along with all of your columns (in my opinion), should be required reading in every high school and college in the country. As always, your column is well written and stated concisely and accessibly. Our democracy and our environment is being undermined by monied interests that prey upon the ignorance of our populace. An ignorance precipitated by the same monied interests that have been undermining our public education system. It is frustrating and sad beyond reckoning to see people vote against their own interests as well as those of our larger society because of basic economic ignorance.
3
The Democratic party is gutless. They vote for wars because they are afraid they will be demonized as wimps. They ran from Obamacare in 2010 and let the Repubs steal the dialogue saying it was a government take over and will push granny off the cliff.
It was Clinton that approved the family leave act which was vetoed by prior Repub president. They stayed silent hiding from it. It took 6 years for people to see for themselves the REpubs were lying about Obamacare.
trump just approved 12 weeks paid leave for government employees and the Repubs stayed silent- if Obama had tried this the REpubs would be scaring everyone that it will add to the deficit.
And now the Dems are tearing each other apart regarding medicare for all. I am not saying this is the answer but you are letting the Repubs scare people with nonsense when we have decades of proof it works. You can always start slow like going from age 65 to 60. You still have private supplemental insurance. The Repubs know that trillions that is spent on healthcare by your employer is just passed on in the cost of goods. Somehow the Repubs have people believing employer provided insurance is free in the economy.
Come on Democratics stand up and fight. The financial metrics state the economy under Clinton and Obama are better than under trump. Stop staying silent while the media boasts the economy is so great. Use real facts and speak up.
3
@lisa after having spent a year on assignment in Michigan recently, I think it's crucial that you get out and talk with your fellow Michiganders. Most of those I met were staunchly republican and deeply devoted to Cadet Bone-spur.
I wish you the best. You've got your work cut out for you!!!
2
Always enjoy Dr. K's columns, even when they make me want to weep with frustration. When it comes to the evils of austerity, however, I feel we've been here before, that this is almost a recycled column. I'd prefer it if the good Doctor would put his considerable skills toward the road forward.
1
Seems like the prof. is right.
1
We need to use the tactics of the liars, those that want to lie about the past, and the future they portray by using those lies. They use the repetition of lies over and over to create a myth of the truth. We need to challenge these myths and lies with the truth about our history. We need to repeat the truth over and over and challenge their lies again and again. If we don't we allow their lies to become the norm and that is when we lose.
1
Could a poor person or person of the lower classes have afforded to travel to Philadelphia and participate in forming our nation? I think not. You get what you pay for in America.
1
Ben Franklin didn’t have much in the way of a fortune, but luckily he already lived In Philadelphia... which is still in PA. Folks in the so-called battleground states are already there now, but often seem to fall for the phony blandishments of their local GOP hucksters.
1
Would we have Trump if years of wrongheaded austerity hadn’t delayed economic recovery under Barack Obama? It appears even the Krugman column is not averse to peddling conspiracy theories of this sort. How often does it have to be repeated we have Trump because of Russia Russia Russia. Got it? Oh yeah also sexism, Bernie Sanders and Jill Stein.
1
You can't possibly mean that the Committee to Save the World actually failed, can you?
Say it ain't so!
1
Inflation is down around 2 percent and the Republicans are spending money like they have there own printing machine then the Democrats will get in office and try to pass some of their bills and the Republicans will start hollering about the sky rocketing deficit. This is like watching Over the Rainbow it’s pleasant when your watching it but you know the next line because you’ve seen it since you were eight and your now 58. Term limits, Vote, and remember ignoring isn’t the same as ignorance you have to work at it.
3
"There are multiple explanations for the populist rage that has put democracy at risk...but the side effects of austerity rank high on the list."
1. "Populist rage" is Conservative/Regressive rage--a nostalgia for the ignorant, prejudiced (racist, sexist, xenophobic), godstory supremacist past.
2. "Democracy"--the word encourages 1 above. It's supposed to be deference to common people's wisdom-- endorsing even theocracy and autocracy--if "the people" will it.
But the US form of government is designed to block majority or plurality tyranny--that's what Constitutions are for. They set up a decision making structures and procedures to search, research and review policy making and implementation. It diffuses authority/power in many branches and levels. It's like the scientific method vs revelation.
The US form of government is (a) Constitutional, (b) Bureau (many co-equal branches--each with its own branches) (c) Federalist (many levels of government with similar structures and procedures). Majorities (more or less) rule only after due process at all levels--including campaigns and elections.
"Democracy" evolved into the myth of "government BY and FOR the [common] people" --confusing balloting with ruling and wisdom--"economic austerity" and otherwise.
1
Krugman claims to remember the lessons of the depression of the 1930's. But he conveniently forgets the more important lesson of the depression of 1920-21. That depression (it was not a recession) ended in one year, not in ten, and only because of a world war. The depression of 1920 ended in 1921 because government let the business cycle run its course. Crucially, wages were allowed to fall to the point at which factory owners could hire again and make a profit even on reduced demand. This means no welfare. No minimum wage. Nothing to keep workers from accepting (temporarily) depressed wages. A Nobel laureate should know better. He actually does.
1
Please show me the years in which government spending declined in the U.S. Oh yeah, you can't. You link to a misleading graph that shows government purchases of goods and services as a percentage of GDP. Using this graph, you knowingly and deceptively exclude every government transfer payment, including Social Security--the largest federal budget item--and Medicare & Medicaid--the 3rd and 4th largest budget items. This whole article is a sham and you are deliberately deceiving your audience. This is the kind of garbage that you like to call out other people for doing, like Paul Ryan and Stephen Moore. In fact, there is no year in which total government spending has fallen in the U.S. or in any European country in the past 20 years and more.
2
Comical! Obama was president during the time Krugman mentions, but of course, Obama had nothing to do with what happened! Truly hilarious. Anything considered "bad" during Obama's time in office is the fault of Republicans, does anyone wonder why Krugman can't be taken seriously?
1
The financial collapse occured under President George W Bush. Obama rescued the capitalist financial system from itself. Yes, as a moderate, he oversaw austerity. Note how rich folks were treated relative to the rest of us.
1
Can we please, please, please use the same ingenious marketing tactics devised by the Republican traitors and get people back onto some sort of common wavelength and sense of normalcy? This is not rocket science. People make a living at this and it's actually taught as a "science." It's so obvious it's painful. It makes me feel like the Democrats are in cahoots, because they are being so unbelievably dumb!
2
Jesse Drucker’s article “How Big Companies Won Tax Breaks From the Trump Administration” is the frame for this editorial. Steve Mnuchin gleefully screws the average American family and corporations do extremely well. Next we will hear from the senator from Kentucky while he argues that we can no longer afford social security, expanded medical care or steps to protect the environment.
Steve Mnuchin and Mitch McConnell will go down as
emblematic of a dark moment in our history. The only issue to be settled is which of the two is the more manipulative and deceitful.
3
The Republican’s deficit obsession was more a weapon against President Obama and less about actual deficit.
Republican playbook: Cut taxes for the rich whenever possible. Then cry about deficit. To reduce the deficit, cut spending that benefit the general public, especially the poor. (In 2016 Jeb Bush’s complaint against his brother GW Bush was that he cut taxes but didn't cut spending!)
Though Donald Trump didn't care about any political parties, other than winning, of any type, he became an ardent Republican with many rotten belief systems that go with hard right Republicans. The latter used him very much as a “useful idiot.” But he got impeached on the way, not really because of his association with them. Many of them are defending him for now, but it’s uncertain how long that would continue.
2
What you fail to mention is that the tea party kooks elected in the 2010 elections were the loudest mouthpieces for this austerity policy. The bigger problem was the “moderate” Democrats that did not stake out a different path for economic recovery. These same moderates in the Democratic Party are seen by many pundits and NY Times writers as the only candidates to defeat Trump in 2020.
1
A well designed fiscal policy is one that doesn’t change every time someone disagrees. Ghcg gv
1
The Fed is pumping half a trillion dollars in repo and 'not QE' for the holidays, with the greatest economy evar!? And the budget deficit is spiraling in good times, party like it's 1999!
1
Congratulations,
You made it through the first dozen paragraphs offering illumination on a subject in which you are supremely qualified.
Before meandering off into politics, in which your opinion has the value of any number of similar validity, available at the cost of a single light beer, in any bar in the nation.
Of course, it is the credibility of elites, not the wave of foreign criminals pouring over our southern border, helping themselves to American jobs and emoluments that caused The Donald.
"Restore Elite Credibility" didn't fit on a cap so we were stuck with "Build The Wall".
Thanks for the explanation.
1
retired federal attorney F71
Easier to understand than the "velocity of money" data here is the fact reported in an October 28 Marketwatch titled "The super rich elite have more money than they know what to do with."
"Capital owned by the top 1%" in this country." Graphs that capture the stunning growth in inequality of wealth from 1990 to 2019.
"If the top 1% pooled all their financial assets, they'd have enough to buy up all the shares of every corporation in America. * * * [But] the top 1% has run out of investing ideas, so they've parked $4.7 trillion in the bank." Cash earning the 1% nothing and being deployed to build nothing for the bottom 99%.
Gives new meaning to the notion of politicians "owned" by oligarchs for politicians at all levels?
source: Federal Reserve and Bureau of Labor Statistics & Haver Analytics.
1
@n.c.fl Banks use deposits as collateral to extend credit but this only benefits Americans if billionaires have their money parked with an American bank.
1
I think Larry Summers single handedly cut short Obama's effectiveness at the two year mark.
1
All the lies they tell themselves are the most disturbing feature of Republicans.
1
I do not disagree with the facts or analyses here. What annoys me is the unwillingness of the Democratic Party to play the same game Republicans are playing. Right now, Democrats should be screaming about the deficit and claiming the world is going to hell because of it. Of course, they should also be yelling about the hundreds of bills dying on Mitch McConnell' s desk. The Republican Party has the great advantage of knowing who they represent--rich people and big business--and being willing to do whatever it takes to achieve their goals. Democrats, who basically represent everybody else, refuse to accept the fact that the great majority of voters cannot comprehend the issues and have to approached with emotional appeals. Lies help.
2
If you cherry-pick your date ranges, you can make all sorts of things look better than they really are.
First, consider the Great Depression. If you look at the US economy by decade, the decade from Jan. 1930 to Jan. 1940 looks like one of vast economic improvement. (GDP$ up 60%) But if you look at the decade from 1927 to 1937, not nearly so good. (GDP% up 10%)
https://en.wikipedia.org/wiki/Great_Depression_in_the_United_States#/media/File:Real_GDP_of_the_United_States_from_1910-1960.svg
Now consider the recovery from the Great recession. By coincidence of dates, Jan 1010 to Jan 2020 looks really good. (GDP $ up 48%!).
But the decade from 2007 to 2017 gives a different story. (GDP$ up 35%) Note that 30% of the improvement happened during Obama's terms, and 18.6% since.
https://mgmresearch.com/us-gdp-data-and-charts-1980-2020/
"There are three kinds of lies: lies, damned lies, and statistics." quote from Twain?, Disraeli?
2
Would you mind sharing your thoughts about exactly what, if any, point you are trying to make ?
1
Okay, and I largely agree with you, but SOMEONE is spending money, or at least enough to keep bolstering so many bottom lines of corporations across America. And trickle down isn't working, either. None of those profit hoarding corporations are letting their employees partake in the watershed they've experienced via increased wages.
The question, when is the government's job of "consumer of last resort" get to be the actual _last_ resort? It seems to have been the consumer of first resort. At some point we need them to stop relying on the corporate welfare system from the government and start relying on actual end-user consumers again. How do we make that happen?
Joe
1
To what Dr. Krugman says, I would add the cause of deficits matter.
Republicans never miss an opportunity to cut taxes, primarily for the wealthy. These tax cuts create few extra jobs for a short time at best.
But if for those same deficits, we spent money on infrastructure, jobs training, education, healthcare, etc., not only would we get a lot more jobs which would turn around the economy, we would get a benefit to society.
Let's pay to get people job training so they can get jobs and pay taxes instead of paying for welfare and prison.
JOBS:
2011 - 2.09 Million
2012 - 2.14 Million
2013 - 2.30 Million
2014 - 3.00 Million
2015 - 2.71 Million
2016 - 2.24 Million
2017 - 2.06 Million
2018 - 2.40 Million
And Obama reduced the deficit by almost 2/3 from $1.4 Trillion to $550 Billion.
And that was with the "jobs killing" Obama-care.
And 20 Million people got healthcare.
2
I am no big fan of Bernie Sanders or Elizabeth Warren but some of their ideas on spending aren’t as obscene as people make them out to be. We need to better educate Americans and should be as anxious to do so as China or India from where we get many of our tech workers. Preparing people for the future over there is public policy, here, not so much. Healthcare is the burden of the government in most developed nations. Here it is the burden of the business community and too many smaller businesses can’t carry the load. Infrastructure spending is huge in China out of necessity for building what they never had before. It’s necessary here to replace what’s antiquated and soon to fail.
Education, healthcare and infrastructure spending can’t be afforded by the richest nation in the world. Why, because we make choices other nations don’t. We overspend on the military and on making the rich richer. We are also hamstrung by politics that, because of lobbying dollars, support industries on the decline and refuse to embrace technologies of the future.
1
@Redone
I saw a figure that 58% of Americans get healthcare through our employers.
You would think corporate America would like to be out of the responsibility of my healthcare and would support Medicare for all.
And all the money they spend on healthcare would go to Medicare for All.
One theory is that by controlling my healthcare, I am less likely to look for another job.
1
Krugman’s only problem with the recent spending explosion is that it didn’t happen sooner. Sequestration was a blessing
2
Thanks Paul for a nice summary of how wrong-headed economic policies during the Great Recession (your term I believe) may have contributed to the rise of right wing extremism in the world today. But with the impending global warming crisis I can't help but think about another important time, the disputed 2000 election of George W. Bush. Had things turned out differently, huge expenditures led by a Gore Presidency in the early years of the new millennium and matched by other large world economies to address global warming would likely have produced a large positive for the world economy, as well as made a significant dent in addressing climate change. Even if 9/11 had not been prevented a focus on reducing dependency on fossil fuels and the avoidance of an invasion of Iraq, would likely have established and strengthened the value of democracy world wide.
1
Obama's Treasury Secretary was primarily interested in protecting the banks. Obama, as always a thoughtful man who paid attention to his briefs, was persuaded. Moreover, Obama was a man of consensus who believed in getting along with, and bringing along, his adversaries. This might have served him well in his previous life and persuaded his admirers that here at last was the president who would transcend partisanship. But Obama was short on realism and woefully unprepared for the systematic obstruction of the Republican Party, carried to extremes both in the House and Senate. The fiscal boost, which might have helped the working poor and middle class even more, was reduced. Yes, the reality was that America's elite cared more for itself and politicians looked to their contributors and helped them out. The Obama years paved the way for Trump not simply in the white nationalist reaction to eight years of a black president, but to a trampling on rules and consensus, paradoxically in the interests of the very rich and corporate elite as represented by a scam artist, Donald Trump.
5
The true purpose and intent of Congressional Republican opposition to stimulus spending in the early Obama years was because doing so would make it more likely Obama would be credited with the likely rapid recovery. This is the same reason they supported Trump’s massive tax cuts: it would put the economy on federal steroids, making it more likely Trump would be credited with the likely bursting economy.
In other words, Congressional Republicans read and believe Krugman and use his insights to undermine or support presidential administrations (the country’s welfare is irrelevant), but profess Laffler (whom they know if a joke) to their gullible supporters, and the media who spread this disinformation far and wide.
1
@Mot Juste
And even those Ryan / McConnell / Trump 2017 tax cuts didn't help that much.
JOBS:
2011 - 2.09 Million
2012 - 2.14 Million
2013 - 2.30 Million
2014 - 3.00 Million
2015 - 2.71 Million
2016 - 2.24 Million
2017 - 2.06 Million
2018 - 2.40 Million
And that was with the "jobs-killing" Obama-care. And 20 Million people got healthcare.
Obama also reduced the deficit by almost 2/3 from a whopping $1.4 Trillion given to him by W Bush to $550 Billion.
2
Very much on target. But I think that the plutocrats also know that they often benefit from these crises of capitalism because the value of all kinds of assets decreases and they acquire them at bargain basement prices, often with devalued (cheap) credit that they alone can access. Look at vulture capitalist Mnuchin and his real estate acquisitions as but one example. They may suffer temporary devaluation of their wealth too, but recover faster and end up becoming even more wealthy.
Also, most democratic politicians hold substantial blame in all of this as well, especially starting with Clinton, in abandoning principles of supporting working class people and people of color (who they never supported strongly enough). Remember that many of those politicians call themselves liberals. That's why we need people like Sanders now.
2
@Doug Well said!
1
The only economic trend you can predict perfectly is the the Republicans becoming deficit hawks when Democrats occupy the White House and forget it when a Republican replace them.
3
That’s very true. If you switch “Republicans” with “Democrats,” it is no less so.
1
Austerity for whom? Many required to bleed for the few.
How many more trillions of $$ will be transferred to the already extremely wealth before we reach the 'let them eat cake' moment? It seems to be just around the corner each passing day.
The grossest and most obvious action to this end is the GOP's recent tax scam for the 1% and the corporations that is now to be paid for by the elderly the ill and the infirm with massive reductions in Social Security, Medicare, Medicaid, and food stamps.
Will we stand for it? The answer seems to be blowing in the wind.
2
FDR had it right in the depression: create government work programs that invested in the nation - its people, its infrastructure, its spirit. President Obama was hamstrung by Republicans who would not have allowed it - and in many cases didn't. The immediate hopeful solution: vote every Republican possible out of office in every election, local, state and national. Democrats are certainly not perfect, but they're a heck of a lot closer to doing the right things on a bad day than the current self-serving Republican party is on a good one.
1
@CP
You need to lookmore closely at FDR and the effects of his programs, policies, and rhetoric. No doubt, some good. But in the main, he sustained the longest economic down cycle in USA history. The Blue Eagle disaster (NIRA) forms exhibit number one among dozens admissable and pertinent.
2
@CP
I agree completely.
The problem is all the people who listen to Fox News.
I don't know how we fix that.
@Gerry Professor
On the other hand, I imagine it would have been many times worse if we followed Herbert Hoover.
One of my favorites is when people say Obama had the worst recovery of a recession since the Great Depression.
What they don't say is that it was the worst recession since the Great Depression so of course that makes sense.
1
This column is a lesson in reality.
Republicans offer a parallel universe of alt-reality which is meant to confuse the issues.
Republicans tried, and to a great extent partially succeeded in sabotaging Obama’s economic stimulus after the crash, which led to a slower recovery, but a recovery that Trump is still benefiting from today.
The Republican goal is a corporate agenda where the richest get richer, and the rest continue to lose ground.
People keep voting, unknowingly against their own best interests.
I recommend rereading this column until you understand it.
3
A dollar in the hands of an average person will be spent in the economy. The recipient of it will take it and spend it. As will the next one, and so on. So a dollar spent in the economy has a multiplier effect. It is not only spent multiple times; but it is taxed multiple times. So if the government was the original source of that dollar, it will get much of it back through multiple tax payments.
A billion dollars stashed into an offshore tax haven has no such multiplier effect as far as the economy is concerned. It may as well have been flushed down the toilet.
1
Those policy wonks who read Professor Krugman regularly and understand Keynes have seen this column often. Like Keynes, Krugman is read and ignored by right and center politicians who insist that in bad times if government fights deficits when the root economic problem problem is insufficient private sector investment and spending, then after sufficient pain all we well again.
Truly insanity really is making one’s past mistakes again and expecting a different result.
3
Paul, you continue to approach these issues which are "economic" as if we were operating in a system that is made up of generally good people trying to generate the best "policies" and rules for everybody.
We do not, probably never have lived in such a world.
We live in a world that has always been run, or "governed" by a powerful few owners for the benefit of themselves. What Human Rights (health care, decent schools wages that support human dignity, etcetera,) we manage to squeeze out from under their boots we pay dearly for through slave wages, and often with blood.
The individuals against whom we are struggling are with few exceptions frauds. Their only concern is their own power, and exclusivity, both of which constitute the ownership "property" or wealth or money. You mention this, "the push for austerity was always driven in large part by ulterior motives. Specifically, debt fears were used as an excuse to cut spending on social programs, and also as an excuse for hobbling the ambitions of center-left governments." The fear is always ginned up and spread by these Wealth Holders so that they can justify their cruelty which is called austerity. The austerity is made for those who are already suffering. The makers of the policy which generates the austerity have no role in the actual living with austerity.
We are living in a war for survival, Paul. We have enemies. They are deadly aware of the situation and very efficient. They are not nice. They play for keeps.
6
@Tom Carney - Tom from Manhattan Beach CA. I could not have written a better response myself. Spot on Sir. The masses, I am hoping and praying, are finally woke. Time for America 2.0
1
The other bad example here is the analogy between Greece debt and the USA .
The history behind the situation of Greece is often mistaken or ignored.
1 - the British occupation forbid the creation of a cadastre allowing all manipulations of property and tax evasion up to today.
2- Germany used Greece as its feeding source during WW2 and never paid reparations.
But in the last decade the Germans managed to bankrupt Greece by interest extrotion on the ruin they had caused themselves 50 years before and buy and rent to them even their public administration buildings !
3-The most important productive force of Greece , the shipping companies, all evaded to London and used fake flags from the US Caribbean and fiscal paradises and never paid any taxes into Greece. ( Onassis ,etc...)
The money of the Greeks is in London that was not part of the Euro zone and never paid any money into the bailing out of Greece, contrary to the lies pronounced by the Brexiters.
To compare the debt of Greece to the deficit of the USA is rather strange and unfounded.
1
One possible definition of evil is the insane desire to be in power and the willingness to throw the majority of American people under the economic bus in order to achieve that goal. Hence the so-called GOP deficit hawks present during the Obama administration, but conspicuously absent now, during the Reagan, Bush 1 and Bush 2 administrations, all which resulted in economic downturns which took a following democratic administration to economically bail the country out again and again. Trickle down has been debunked repeatedly, yet today we are seeing the effects of the 2017 Tax cut and "jobs" act: lowest unemployment, yet no wage gain for the last 40 years. The rich are getting richer and the middle and lower income classes are spinning their wheels, getting no where economically, actually losing ground.
Trump told the people of Lordsburg (recently closed GM assembly plant) not to sell their houses as he was going to get their jobs back. Well, the plant never re-opened, their jobs didn't come back, and I wonder how much their homes are worth now; if they haven't been foreclosed upon?
There has been no economic expansion as a result of the 2017 trickle up shakedown of the American taxpayer. We are in fact, paying more because of the duties imposed upon imports. Trump knows nothing of the economy and trade and is too lazy to educate himself about it. He is the classic example of the Dunning -Krueger syndrome: Is convinced he knows what he actually doesn't.
4
Another factor in the GOP push for austerity during the Obama administration was specifically to slow the economic recovery so they could later use the slow recovery as a political talking point. Party over country? Absolutely. Hypocrisy? Of course. That is what Republicans have done for decades, which hurts a large percentage of their constituents, who are apparently content with the misguided notion that their economic problems are caused by immigrants taking their jobs; Hispanics and people of color getting a larger slice of the pie; or secularists threatening their religious freedom.
7
Even though Krugman persists in believing so, the government doesn’t have a dial called “spending” with which it controls the economy.
1
Although many regular ("small") people acted irresponsibly, buying into speculative, predatory loans, they paid a very heavy price, with many losing their homes and jobs.
It was a horrendous political mistake to bail out the banks and big corporations while largely ignoring the middle class. And denouncing people as "deplorables," sheesh...
"All politics is local." In other words, you have to offer people something concrete, make them feel that you're on their side (even if it isn't true), NOT denounce, demean and threaten them. Condescension is a no-no in politics.
1
@Jim Hansen Why is it good politics for conservatives to call their opponents every name in the book, but because liberals didn't show complete and total respect at all times, it cost Hillary Clinton the election?
5
The bottom line in this is that the rich, thanks to their puppets in Congress, will always find ways to keep getting richer The only policy Republicans in Congress care about is doing whatever it takes to stay in office. If this means toadying to the rich dumping on the rest of us, they can and are doing it. Only in America.
4
"And would we have Trump if years of wrongheaded austerity hadn’t delayed economic recovery under Barack Obama?"
No, which is precisely what GOP "austerity" is all about in the first place.
They know that they need ignorant and desperate citizens to be able to continue to win elections, even though their agenda in DC is merely to make the wealthiest wealthier.
Can you imagine that they would have helped Obama to get out of the Great Recession asap?
Hillary would have been president today.
The "GOP austerity" is the EXACT opposite of "putting America first". It puts the GOP first.
5
This is a strange column. We may have Trump due to austerity during Obama but electing a Republican was always the plan. Weaken the middle class and working class, destroying unionism and right wing governments become inevitable if not highly likely. As bad as Trump is at least he is not trying to start needless wars which both parties often support. The democrats need to strongly support trade Unionism. Lets hope they figure this out and strengthen unionism before we become a fascist regime. We all may be dead because of climate change before anything is done right.
1
As bad as Trump is at least he is not trying to start needless wars which both parties often support.
You might want to take a look at Trump's policies toward Iran. Closer to the election, a war with Iran might be just what he wants.
4
The Republicans sabotage the economy and then reap the benefits of the voters' anger. Kind of like when they install incompetents in the Executive branch and reap the voters' anger at the fact that the government doesn't work.
5
In other words, hypocritical austerity is a winning political formula for wealthy nationalist authoritarians. Expect it to be trotted out the minute Republicans aren't in charge.
One other thing you're forgetting to mention though; economic crises are wonderful buying opportunities for people with spare cash, like the ultra-wealthy. When the 90% sell their 401(k) investments in a panic, guess who's buying?
5
@Sam I Am
Obama called them on it, about the time I started paying attention. He stated in some form, Republicans were in no position to argue fiscal responsibility.
1
It was worse than Dr. Krugman describes.
The deficit and austerity became a meme when McConnell, backed by Ryan in the House used it as one of the ways to deny President Obama any success. Obama even bought into it with his attempts to frame a compromise, but then the Republicans denied him that as well.
It's gotten so that every problem America is impotent to solve has Republican dirty tricks underneath it.
7
Dr. Krugman:
You are completely right. But Christine Lagarde never learn that lesson, and of late, congratulating the Mexican President for his restrictive expense in a stagnant economy.
It is clear that neither the Europeans nor the FMI ever learned economics. Sad.
1
Austerity has turned America into a flimsy toy bought on sale at a dollar store. Everything --- and I mean everything here --- feels cheap and low-quality these days.
2
Also, people just don't recognize a good thing until hings got worse, a lot worse. Human nature.
1
And the fact that those Republican directed policies were largely aimed at making Obama an unsuccessful President makes them even more heinous.
1
I think the world of Paul Krugman, but what emerges from this argument is that the Tea Party and birtherism didn't happen. He knows as well as anybody that economic anxiety did not cause the occupant of the Oval Office to bring his treason to that location; it was bigotry, and those two factors were crucial.
1
The need to appear reasonable and serious on the part of the mainstream media and centrist politicians has a lot to do with the appeal of Trump. A good example is the need to give what is called a balanced view in political reporting and commentary. This lead to the continuous repetition of conspiracy theories. Decent people were hesitant to use words like fascism, mental illness or lies. On the other side there is no bottom to their mendacity. This is one of the ways Democracy dies.
1
"And would we have Trump if years of wrongheaded austerity hadn’t delayed economic recovery under Barack Obama?"
Is this a feature or a bug? …or a crowning achievement of the 50-year GOP Alliance Of The Cynical And The Credulous?
1
Prof K is once again preaching to the choir. The Party of Trump cares not one iota about doing what is best for america or Americans. The Party of Trump serves only the 1% all while conning the 37% who are being duped by the Fox propaganda machine.
3
Let’s use an old-fashioned term “development” to refer to economic growth and especially its extension to the poor among us. And let’s refer to another old-fashioned thought that development is a consequence of freedom (an assumption of both conservatives and liberals at one point, certainly no present Republican appears to subscribe to it other than in its perverted libertarian guise, and it is equally perverted by the Democratic faith in governmental solutions since the relative “success” of the civil rights movement). Perhaps Mr. Krugman subscribes to this old-fashioned economic idea, expressed eloquently from as far back as Adam Smith and demonstrated especially by Dutch and English history. It’s the heart of what we call capitalism (small “c,” not corporate capitalism, not High capitalism), or so it seems to me.
Perhaps this column’s concern with government policy detracts from his expression of this basic economic fundamental. But perhaps he doesn’t consider this foundational relation between “development” and freedom as consequential in this age of big government?
Perhaps I’m just more liberal than Mr. Krugman.
1
How can we get off this personal hamster wheel of spend spend spend that ends in such waste and such cost to the environment? When do we admit this economic theory of growth and profit is sick to the point of killing us all?
I vote for interest that rewards savers and goods warrantied for longer than a year and buying what we need not what we think we can't live without . . . until tomorrow.
As for government spending, please give us an itemized breakdown! Military up up up? Trump family travel and profit? Cabinet and how lower down boondoggles? And spending on the taxpayers paying for it all . . . . . . . . . ?
1
I see peace, prosperity, full employment and rising wages. Nice try Mr. Krugman.
2
After years of government not working for them - thanks Mitch McConnell - people wanted to blow it up.
Trump promised to blow it up.
1
The both siders are out. They forget that the steps that Obama took such as a payroll tax holiday, extended unemployment benefits, increased food stamp eligibility was derided as Marxist socialism. Every step he took was met with tremendous resistance and gave rise to the ersatz Tea party movement.
Because the perception that Obama was Republican-lite Democrats stayed home and got crushed in the midterms. Now we have real Republicans and they are on the path of untold devastation from the budget, to healthcare, to environment, to food safety, to scientific facts, and so on.
1
And then along comes Joe Biden pushing more of the same.
This kind of Democrat we don;t need.
4
The Republicans started destroying the citizenry's bodies and souls back in THE 1980". When does this country wake up? They would just as soon anyone who does not agree with denying people a modicum of dignity simply die off, get out of the way, so they can drive the planet into collapse.
It was very apparent under Reagan.
1
the crisis of 2008 was caused, to a considerable degree, by replacing income with debt, and then deregulating credit rules to cause galloping inflation in housing.
Simply doing more government spending without fixing structural problems in the economy is dangerous. If public debt does not matter, why don't we abolish all taxation and, in fact, abolish all the money? The government can give us all we need? We will respond by being productive? Wait, where have I heard this before ...?
Weimar Republic has been predicted by some for a decade now. It has not happened because money is being printed through debt and thus has limited ability to flood the main street economy. It does not mean that printing money does not distort the economy and do long term damage.
Reagan revolution does need to be significantly altered, if not undone altogether. Some common sense needs to be maintained, though. Saying that the government can spend anything because "we print our own money" is not common sense and, taken to extremes, will take us to large inflation which will have it's own, devastating consequences.
I think the Nobel Prize winner in Economics should be able to do better?
1
The proof of your thought is the lack of inflation. Today's budget deficits are caused by tax cuts to the very rich--and those few don't increase their spending on items measured by the inflation index. Thus bread prices have been stable, but real estate in Manhattan and San Francisco have soared.
1
Realistically, high end real estate in desirable places, or en mass in less attractive places, becomes an investment vehicle, like bonds or expensive artwork or even yachts. Of the very expensive places bought in cities like LA, NY, SF, Miami, or Las Vegas, a big chunk (perhaps half or more) is bought by foreigners looking for a safe place to stash wealth. In that way, the very high price is a benefit that has rippling consequences for everyone.
1
@Pottree How do high real estate prices help everyone? Doesn't gentrification lead to more homeless people?
1
@Pottree Also, foreigners have been buying expensive properties in the US for many years. As a matter of fact, similar investment by Chinese millionaires has basically disappeared since the trade war and tax cuts.
1
Back in 07 a lot of us observed that an unsustainable bubble was in progress. Massive tax cuts and 2 wars were gutting us and the credit and housing bubble were bizarre and obvious. But when the crash actually happened I read over and over again about how “no one saw this coming”. My thought at the time was, really? I saw it coming for practically the entire W presidency. It was really basic math after all. I guarantee the the holders of the economy are planning the next crash to occur right around election (if they’re expecting a democratic win), and the economy will be in tank mode by the time she or he is sworn in so the blame can be placed onto the dems. Not only is the economy rigged, I’ve come to believe its highly orchestrated. I’d put money on this scenario.
3
The only problem is, this is not a depressed time, it is the best of times for many people. Now would be the time to reduce a deficit if you could, perhaps by reining in the benefits paid to many of our public servants. Ever wonder why no one stops working for the federal government? Check out the benefits package and you will understand.
1
@DickH
How about expanding them to all?
2
@DickH Yes, blame the "wage slaves". Government workers should be paid starvation wages like their "free market" gig-economy brothers.
2
Professor Krugman, you were right then and are right now. Sadly, as you suggest, a good deal of ignorance, misinformation, and perhaps deliberate mala fide manipulation continues to infect informed discussion and prevent beneficial corrections as we move forward. I'm heartened at least somewhat that your important voice will continue to be heard. As a corollary, we - through the government - need to revise our laws and regulations that permit private entities to reap uncontrolled profits from research and products that our tax dollars underwrote and developed.
2
Unfortunately, the two sets of numbers the public is most exposed to are gasoline prices and the stock market numbers; one artificially and dangerously low, the other fantastically (as in fantasy) high and a reflection of nonproductive investment for short-term gain.
It's impossible to expect people to comprehend economic reality when the metrics they see most frequently are designed to do just the opposite.
2
When people's lives are good, they tend to be happy. When people's lives are bad, they tend to be angry.
Along with bad economic policy, inequality in wealth and income explains a lot of the "populism" we're seeing now.
3
Paul, this op-ed is really just a restatement of articles you have been writing for years, all of which I agree with. But regardless of all the evidence you cite in support of your spot-on opinion, at this point you are really just preaching to the choir. Just as they did (and do) with the debunked conspiracy theories during the impeachment process, Republicans continue to try and bring back to life their trickleless trickle-down economic policies. We know this. So, it might be better to turn your attention more to the real culprits behind the fraudulent economic policies of the GOP, people like Ronald Reagan (who gave life to the trickleless trickle-down theory), and Mitch McConnell (who may be the biggest economic phony of them all, but whose deceptiveness goes far beyond economics). There are dozens more—you mention some occasionally—but I think you need to take this essay to the next level and call out, repeatedly, the GOP members who continue to recommend debunked austerity economic policies.
3
So, is there ever a time when austerity is advisable? Or does it need to go hand in hand with sensible tax rates? How high can we allow the deficit to balloon? When does necessary public spending become populism?
1
American capitalism and trickle-down economics: A history lesson. Hint: It didn't start with Reagan.
"The money was all appropriated for the top in the hopes it would trickle down to the needy. Mr. Hoover didn't know that money trickled up. Give it to people at the bottom and the people at the top will have it before nightfall, anyhow. But it at least will have passed through the poor fellow's hands." (Will Rogers)
Fast forward to the 1980s
"Trickle-down economics is like having 3 dogs, giving one of them a hot dog and thinking, 'he'll share.'" (Bill Maher)
Trickle-down economics defined: "If one feeds the horse enough oats, some will pass through to the road for the sparrows.” (John Kenneth Galbraith)
Republican capitalism: Free-market capitalism for the rich without the responsibility
When do you think Trump's base will see the pattern?
2
@PB They won't. They are constantly exhorted to avoid thinking for themselves and many seem happy to follow that advice.
1
Trickle down economics: a lawyer billing $700 an hour to protect clients from the consequences of their misdeeds flips an extra 50 cents tip to the guy who shines his shoes.
2
You forgot to mention the lack of prosecutions for outright fraud by top executives at the largest banks. Prosecutorial timidity by the attorneys general is as much to blame as fiscal austerity for the population to reject status quo politicians (are you listening DNC?).
4
cf: Eric Holder, Lanny Breuer and their policy of "collateral consequences".
1
Nonetheless, wasn't it great when the Federal Budget was balanced under Clinton? We must, at some point, get the accumulation of Federal debt under something that looks and feels like control. What better time when than when there is low unemployment? And it is actually possible to reduce military spending and redirect revenues to a combination of social programs and debt reduction.
2
@swbv Someday, I would like Paul to discuss the 90s. How it began with a poor economy and ended with the horrible bang of GW's appointment through a very flawed and questionable election. I believe everything would have been different with a smooth transition into Clinton's VP, Al Gore as president. For these reasons I think of the Clinton years as the best economically of my adult life (college grad 1977), which nothing since has approached. And I think of the SCOTUS choice as "the day the music died" for the American economy. I'd like to hear someone as smart as Paul speak to this.
2
If the public does not have the benefit of a solid education, any and all explanations will be useless.
4
What do you do when most of the electorate thinks a country is simply a household writ large? At some level, these people think basically anybody could manage the economy. This means the austerity models will always be the 'obvious' solution to many voters no matter how much havoc it creates.
Most citizens (sadly, even on the Left) believe that experts are people who think the same ideas as they hold but have more data to support it. The possibility that experts think in a completely different way because of the way they interact with data and with other experts really does not make sense to the average voter. They have no way of imagining that appearances can be deceptive because of faulty or partial thinking. Huge problem.
1
There was a telling moment shortly after then-Speaker Paul Ryan announced the House passage of the massive tax cuts — a socialized benefit to the rich and powerful, and to corporations begging to improve the lives of their executives — through multimillion dollar bonuses —and for their shareholders forever demanding instant gratification. Ryan was caught on a hot mic telling a colleague how the new, massive debt would enable Republicans to begin the process of reducing and eliminating social programs (they preferred to call "entitlements") such as Social Security, Medicare, Medicaide, school lunches, etc.
Ryan and his co-conspirators knew the tax cuts would bloat the national debt. But it has been a reasonable cross to bear if they could toss the old, the poor, the young and the sick into the gutter of dispair and anger.
My questions to Dr. PK: When/if the Democrats take back the White House and both chambers of Congress, will it be legal to claw back those tax cuts? Will they be able to force the SCOTUS to revisit Citizens United? How about ridding us of gerrymandering and the Electoral College — political devices that has outlived any usefulness?
We have learned that investors' short-term demands required short-term corporate strategies which also bloated executive bonuses. Long-term planning and strategies are long overdue if we are to bring any stability to our economy and the American workforce.
1
Dr. Krugman is right in what he says, but in order to concentrate on the mistakes of the last decade, he isn't looking at the policy mistakes of the previous decade, which also are part of why we're in the mess we're in. Both things together show how the perceived interests of the elite have moved away from the interests of everyone else. The bubble economy of the 2000s mostly benefited the very rich, leaving everyone else with elevated levels of debt, while the wealthy often were able to walk away from debt through the bankruptcy laws, knowing that their credit wouldn't be ruined, or received bailouts. That, in turn, left them convinced that they were geniuses and that bubbles are great things because they can make so much money during the bubble that it more than makes up for what they lose during the collapse. A big part of the emphasis on austerity afterwards was to keep interests rates as high as possible, which benefits wealthy investors while it hurts ordinary people. There's so much more to say on this, as Dr. Krugman knows better than most of us.
1
2019 and the 2010’s are over...it is time for Paul to move out of his rut and on to the economic issues that will confront all of us in the existentially consequential decade ahead. What are the economically feasible remedies that must urgently be considered and evaluated in confronting climate change, income inequality, providing universal healthcare and repairing crumbling infrastructure? We should be undertaking an in-depth analysis of our economic boom to understand the unsustainable drivers and those policies which should be continued. We must understand the proper role of global trade versus nationalism and their impact on worldwide economic and political stability, or we may devolve into dangerous isolationism.
Critiquing the bogeymen of the past is akin to Trump’s climate change denialism: the existential threats are here and real...the solutions must be considered and debated here and now....or we may not be around in 2029 to second guess the failures of he 2020’s.
2
@Asher Fried
Dr. Krugman is issuing a warning about a past folly because this simplistic, obtuse idea that the national economy can be managed like a household budget will not go away. It rears it head every time there is an economic crisis, and it's always reared by Republicans and conservatives. It's smoke and mirrors that makes them look like their "doing something" without actually doing anything. Dr. Krugman's op-ed explains this.
2
It’s all well and good to criticize the Republicans for hypocrisy here, but we should not forget that Obama listened all too closely to “moderate” elitist Democratic economic advisers like Larry Summers and others in thrall to Wall Street. These guys preached the same austerity sermon, and their influence did much to keep Obama from pursuing stronger spending policies to better promote recovery at a time when the Democrats still controlled Congress. That undermined middle-class and working-class support for the Democrats and was a key reason for the Republican victories in 2010 and 2016.
4
As a hugh school Economics teacher, I try to stay up on all of these events and analyses. The one thing I have not seen is a discussion of the relationship between our very low unemployment rate and our Brand new, very low, worker participation rate. The US participation rate has dropped from 66% to 62%. It would seem logicak that some of the unemployment rate is explained by "super-discouraged" workers. Remember, that the Great Recession was the first time the US saw a large amount of long-term unemployment. So the drop in participation rate could simply be these 55+ year olds who have permantly left the work force. Wouldn't this help explain the extremely low inemployment that is coming along with our mediocre growth in the economy? I would love to read more on this, Dr. Krugman!
3
@Histroy Teacher I would add that the low worker participation rate is exacerbated by the thousands upon thousands of HS dropouts, HS grads, college dropouts, college grads-- who no longer enter the traditional workforce as was typical, and as is required in order to be a healthy adult. Everywhere you go you see young people living with their parents, getting by on jobs with no future, or just the occasional gig. As a HS teacher, you must be well aware of this. It is a tragedy that I for one do not understand. (my recent college grad son is fully launched into career and life)
1
@Histroy Teacher
Some of that dropped participation rate are those who stepped in to provide care for grandchildren and elderly parents. It’s crazy having both parents working, nowadays, and trying to keep up with their schedules, along with the school/teacher schedules. Christmas vacation, summer vacation, spring break, every second Monday in the month - two grandchildren at two different schools. I thought about a part-time job, as the last grandchild entered school. Think again. The pickup schedule has me sitting at one school for an hour, attempting to be first in line, so I can end up last in line at the other school, which is just a block away from my home! So much for buying a home close to school! (But if you know of a federal job, I can do in flexible time with benefits, please feel free to contact me!)
1
But will we learn from past mistakes? I have little confidence that we will.
1
As usual, Mr. Krugman makes a good point. I recall that during the immediate aftermath of the crisis, both G.W. Bush and Obama lobbying and cajoling congress and the public for funds to bail out the banks that were too big to fail and for financial stimulus. Unfortunately, the calls for "fiscal responsibility" soon followed and Main Street has still not recovered, nor have the retirement accounts of many Americans.
The biggest issue that I had with the Obama administration was why there was not more focus on finding and punishing those responsible.
The calls fiscal responsibility were also heard across the Atlantic and, as Mr. Krugman points out, have contributed to the rise nationalism there, which in turn threatens the EU. I would also fault Angela Merkel, whom I admire, for not loosening the purse strings. If she had, maybe Greece would not be the poster child for austerity, and Hungary, Poland, and others would be in a better situation.
4
Paul you can blame the inadequate stimulus, but that means little to those who have never been taught and haven’t the knowledge to agree or disagree. But, I can point out the things which tick others off. Take the column in the recent retirement magazine, which ended up on my desk. The columnist had did everything right (I bet she had some outsized help, too!) and now she was going to start her retirement dream, living in Paris for a couple years, enjoying their museums and their dining. So much for my spending is her’s and so on. My community used to be vibrant too, until some took all the money and moved to the sunny states.
1
I think i understand this part: "an economy is not like a household, whose income and spending are separate things. In the economy as a whole, my spending is your income and your spending is my income." But certainly everything must be paid for sooner or later. What is the government "spending" when it increases its budget? If it's all hunky-dory, then why do taxes rise? Why tax anyone at all? He's a smart guy, but I'm still puzzled. May I conclude from Mr. Krugman's argument that the government would do well to buy a new house for everyone?
1
All true. But have we simply graduated from Keynesianism in which the government finances the production of wealth to a model in which there is the dispensation of unearned wealth. In other words compensation in exchange for labor or services has been made obsolete by productivity. Providing goods and services has become so cheap that wealth should have no cost. Essentially Star Trek. “You mean you don’t have money in the 23rd century?”
“We’re don’t!”
It may sound blasphemous, but what is the wealth tax, or Chang’s 1000 dollars a month? Or free health care or free college tuition. Think about it.
1
One thing that was clear as it was happening is that the Republican party was hellbent on keeping Obama from getting credit for an improving economy. They used phony concerns about the deficit to justify their actions designed to block economic recovery so that they might be able to regain power in the next election. This deeply unpatriotic behavior had to be disguised somehow--fearmongering over the deficit was the disguise. That they immediately ignored deficits when they regained control over all three branches of government in 2016 proves their true intentions. The saddest part is that so many refuse to see that the emperors have no clothes.
9
One of the problems with political discussions is that they center around economics as if that were the primary motivator. I think what is missed is that identity politics play a HUGE role in people's perceptions of themselves and their voting patterns. So we see actions against economic self interest in support of nationalism, of whiteness, and of religion throughout the world. It seems almost impossible to fathom that our species will destroy itself and the world over such things. We have the means to have water, to have air and to have food but we seem hellbent on not using them . Thanatos.
5
@Peter Well said.
2
The lesson here is that economics, more often than not, is not a science, but is values and ideology implemented via politics.
I'm reminded of a story about Austria which had experienced a booming post-WWII economy. Someone asked the Austrian Chancellor what he attributed his country's economic success to. He replied: "We exported all the economists."
1
I am sure I am simplistic in this assertion, but Republicans were in large part responsible for the recession and then responsible for the determination to prevent Obama from spending to shorten it. Now they are responsible for the exploding deficit. What economic philosophy do republicans believe in? Unregulated capitalism and trickle down economics.
9
@Tmac1944 , I would just add this to your good comment: and for the wealthy to scoop up the spoils when the inevitable adjustment or crash comes. In 2008 and beyond this meant buying up entire neighborhoods of foreclosed homes, and today renting them at obscene amounts, that are not in line with the relative bargains they bought. Sigh.
1
"Unfortunately, policymakers on both sides of the Atlantic spent the first half of the 2010s doing exactly what both theory and history told them not to do. "
Thank you, Republicans, for handicapping the recovery with policies that were known to be delusional. It's always possible to spend money like drunken sailors if you take out massive loans to finance that, which is what's happening now with the deficits created under the regressive Trump tax cuts and what happened under Reagan with his supply side policies. Those theories have never proven worthwhile for anything other than enabling ever more inequality in our country. It was grab and run for the top tier wealthy elites then, and still is today.
What is most amazing is that, according to Steve Ratner's column today, every single measure of Trump's performance as President is a clear indicator that he has been historically incompetent in office. He has done incalculable damage to America, and has done his best to diminish our democracy in favor of the autocracy he so badly wants to establish here.
And yet, he may still win re-election. All because of the antiquated and undemocratic Electoral College.
We need a direct vote for President in this country, just like we have direct votes for every other elected office. If we want America to be a real democracy, it's time to stop supporting the slavery-friendly mentalities that created the College.
12
There is a direct line from unnecessary austerity to Brexit - a disastrous mistake that will damage Britain for generations.
5
Paul Krugman astutely observed " ... inveighing against the evils of deficits makes you sound responsible, at least to people who haven’t studied the issue or kept up with the state of economic research. ..." Well said. Waving austerity placards is just political phonies posturing as "Very Serious People".
There is a link of destructive austerity to the crisis of democracy and the rise of populist rage across the Western world. Yet something is missing.
One could also argue that "inveighing against one-party government labeled as authoritarian, while praising democracy & universal suffrage, makes you sound high-minded and caring, at least to people who haven’t studied the inherent flaws of democracy & universal suffrage, or kept up with the disastrous results of democratic elections".
Plenty of examples: UK's Brexit & Boris Johnson, USA's Donald Trump & bipolar Congress, Hungary's Viktor Orbán, and India's Modi, etc."
Krugman should write about how China pulled millions of people out of abject poverty, build the largest middle class in the world, unleash underused human resources, and give people hope. Let it be based on economic data and facts.
PEW survey shows Chinese are very optimistic these days, while Americans and Europeans mostly see gloomy future. By the way, that's true of the rioters in Hong Kong. They see little upward mobility. And they are sold by the propaganda slogan of democracy and universal suffrage, yet clueless about them.
1
How much time have you spent in China lately? They are not optimistic & are saving like mad.
1
Excellent article by Mr. Krugman. If you liked this, I would highly recommend Yanis Varoufakis's book "Austerity (Vintage books, 2016). He became the finance minister of Greece in 2015. In this book he details his fight against the prevailing bureaucracy in Greece, where austerity at any human cost was the battle call. Fascinating read.
3
@Tom That is what inspired Costa Gavras film " Adults in the room " using Christine Lagarde's words.
Meaning that European leaders were behaving like children (specially the Germans ) and it would be nice if there were "adults in the room " .
1
Right on the money, Paul. Sweden is another great example.
3
A worthwhile economic theory is one that describes what the optimal distribution of wealth in a large economy looks like. I have yet to read or hear of any economist who has answered this question. Mr. Krugman is the answer beyond the reach of mere mortals?
1
@michael You have not read any economy then.
1
100% agree! And it's been maddening that mainstream media hasn't even hinted at this underlying truth, much less focused on it. As usual, they are forever distracted by the "bauble of the day". They're like cats chasing a laser pointer.
The time for governments to be austere is when interest rates are high, which is usually when the economy is really perking. We are in an interesting situation right now when the economy is good, but interest rates are still low. To me, this shows an economy that is out of balance. It's top heavy - there's more money trying to be lent than borrowed. It's a great time to borrow for infrastructure investment, so why isn't Trump doing that? Is his wall the only infrastructure he's interested in?
Dr. Krugman also raises an interesting, and I think valid, point about how the public perception of elites has dropped. Of course, the continuous bashing of elites by Republicans has also been a large factor. I think that to restore some credibility with the general public, elites need to re-calibrate their communication skills toward common, everyday language. Drop the specialized jargon, and make your points in plain-speak. Save the jargon for your peer conferences.
3
If the economy is depressed, people are out of work and struggling, and the government steps in with stimulating spending to take up the slack, who exactly will be paying for the spending? True, the US government has a singular ability to simply expand the money supply (printing more money) but of course in certain well-fed circles this is a fate worse than death... I think because it is assumed this will dilute the value of the bucks some are still hanging onto for dear life.
But it’s basically the old song: the poor and those marginally scraping by aren’t going to pay for it - those with money will. Hence, austerity as a reaction to recession and depression.
I don’t know if it takes an economist to parse the situation, but a psychologist would probably come in handy.
3
If the politics were all about the economy then since the common worker hasn't been advancing wouldn't we be looking at swings between parties? It seems that we may be seeing that here and now.
As to the performance of business, not the economy, the stock markets, Dow and S&P500, have performed about the same for the second of Obama's term and the first of Trump's (so far).
So that fact that authortianism grew during the past decade may be more of a swing from the current status that is driven by the economy and in the next cycle it will move back. In the US that is a fairly short term as defined by our constitution and would be very difficult for some to fully corrupt. In other countries like Hungary and Turkey the authoritarians have solidified their positions making the swing back much more difficult. In fact, in those countries the move from authoritarian rule will likely require a REAL coup d'etat.
1
I wonder, since apparently the authors of these articles read the comments, if Dr. Krugman would consider discussing modern monetary policy in this context. MMT seems fraught with controversy, I see it as a way to address looming social program shortfalls ( refunding SS, eg) and infrastructure policy spending in the future.
1
Your take is a hard sale today although I agree with you, they are in power now and it would look to most Republicans thing are great even if they do not all love Trump. The GOP will take credit for the best economy ever the Democrats will win the next election then we will crash they will say see what the Democrats did. The top 1% will laugh all the way to the bank so go's the world we live in.
4
And then the democrats will spend the next decade getting the country back on its feet, only to have the wealthy swoop in and exploit it until the whole cycle starts all over again.
6
"There are multiple explanations for the populist rage that has put democracy at risk across the Western world, but the side effects of austerity rank high on the list."
You never want young men, with all their energy, to have no jobs, no work, no hope for the future. That's a recipe for disaster. All that energy can get channeled to hate when the right leader comes along.
When Europe went all in on austerity and I read reports on youth unemployment I thought that a resurgence of right wing nationalism could be a possibility. Add to that the Middle East refugee crisis and lower wage Eastern European mobility, then Europe had the makings of a perfect right wing storm: someone of a different ethnicity and/or nationality to blame for all their problems.
But as always, austerity has allure to Conservatives because at its heart, there is the cruelty. A cruelty that always negatively affects the very people who had nothing to do with causing the problem in the first place. Somehow the people making the 'tough' decision to go all in for austerity make out just fine.
7
Ok Mr Krugman, but today's economy is not depressed. The crisis of 2008-2009 was fueled by easy money and greed. The very policy that you promoted in the Clinton years.
Now we are in 2020, twelve years later. It's high time to get back to normal Mr Krugman. After boom, then bust in 2009, now boom, let's do the right thing again and pay decent interest rates for cash reserves, and all the other things that are normal.
1
This marks a change in tune for Krugman. For the past three years he has argued (hoped, even) that the economy wasn’t as strong as it appeared, and/or that it was about to roll over into recession. It seems “about three years” is the answer to the question “For how long can Krugman keep pretending the economy is bad?” Now his updated view is that while the economy is good, the comparison between the economy during the Obama years and the Trump years isn’t fair, and that the economy would have been stronger during the Obama years if only the government had spent (even) more money
2
"And would we have Trump if years of wrongheaded austerity hadn’t delayed economic recovery under Barack Obama?'
Unfortunately, we would have Trump. He was elected because he tapped into a long-festering well of disillusionment about government and how the everyday people are faring in this economy. And the policies which filled the well existed long before Obama. Obama was successful in rescuing us from the Great Recession, but he was stymied when it came to fundamental changes on inequality.
3
@Ken L
We have Trump because the economy is not the issue with his voters. Their issues are illegal immigration, wasting lives and treasure in foreign tribal wars without the promise of benefit to the US. Trump voters are tired of the the talking heads in executive positions, basically the deadlock in Congress. They want government decisions that make sense and benefit the US, not the dysfunctional people in the world.
1
"My spending is your income, asnd your spending is my income." Quite so.
Everything else is psychology. And most of it is superstition. Here's my take on that:
The most pernicious of these superstitions is that money is some kind of stuff. As in "The money went to those who don't need it." What actually happened was ledgers recorded changes in credit and debits. Some people ended up with huge positive balances, while most of us ended up with much smaller ones, even zero and negative balances.
In short, most of us were cheated. Our labour was priced well below its value. The anger of the left-behind is the justfied rage of those who followed the rules, and were scammed by those who manipulated the rules.
10
Despite superficial appearances, I don’t think rich people spend much, really. How many lunches can you eat, after all? What the rich have that most don’t have at all, or in much abundance, is vast troves of loot they do not need, looking for a place to stay, throwing off even more money; safe cookie jars. The object of the game is to grab as much as you can, then find some safe stash - ideally something that earns as the money sits... but as long as the money is safe from evaporation, it’s ok as long as the value of each dollar stays at least steady. Don’t waste money providing things like food stamps or health benefits to feckless idlers when you can brag about buying a $40 million condo you don’t even bother to live in while in the locker room of a tacky Florida club with a $200k membership fee.
Do I hear the distant strains of the International?
8
My very successful brother said many times; "You have to spend money to make money". That sums it up pretty well.
4
Mr. Krugman,
Thank you for bringing attention to the hypocrisy of the Republicans. Many of us have watched this through the years and it is only getting worse.
What I would like to see economists do is to explain how the Feds have mismanaged our economy over the decades, creating bubbles because they were afraid of political consequences for doing their jobs.
One Fed Chair that comes to mind in particular is Greenspan - that Ayn Rand man who thought "irrational exuberance" would play itself out. ... and it did with disastrous results!
So, we would like to see some analysis that shows why those of us who saved and wanted only a modest return from CDs have been disregarded for decades while the Feds have propped up the credit markets. .... only for it to all come crashing down while savers are then savaged again!
Tell us please why savers have been sacrificed for the credit markets which only propel more artificial and dangerous outcomes as we have witnessed time and time again!
It is very hard to retire without a pension and with a cd that just renewed and only earns 1 1/2% interest for 7 mos.
Right now, as far as I'm concerned I would like to see a huge wealth tax on the 1% and transferred immediately to the bottom 50%. ...and you know what, it would not be a gift but a return of borrowed/extorted funds.
692
Brilliant.
44
Not the Fed, private sector banks...
19
@Blanche White - 'A return of borrowed/extorted funds', indeed; how quickly it has been forgotten that the only reason the lights didn't go out at the casino in 2008, was due to the full faith and credit of Jane/Joe Sixpack and their Federal Treasury stepping in so that large corporations could make payroll.
The repo markets were frozen because deregulation had made bankers distrust each other.
Not only did Jane/Joe have to back sacrosanct bankers' pay contracts at the casino, not only did Main Street miss out on the bailouts, not only did Jane/Joe lose their 401k and possibly their home (the middle class's main asset) but now the very people who were in the Congress and Senate insisting on deregulation under Dubya, want to slash Jane/Joe's and their neighbors' Medicare, Social Security, and Medicaid, which pays for nursing home care and keeps rural hospitals open.
And it all must be done to hand out more tax cuts to the ultra-wealthy, whose 2017 tax cut bonanza created deficits for GOPers to whine about today?
Borrowed/extorted, is actually too polite a term.
180
Professor K., I believe this is one of your most incisive columns in recent months. It can't be overstated that by bailing out Wall Street while leaving Main Street to rot and fester was a titanic mistake by the Ruling Class on both sides of the Atlantic.
What the "little people" saw with crystal clarity (regardless of their political persuasions) was that The Powers That Be cared only about making the banks whole on the backs of the masses.
Furthermore, the fact that not a single bankster spent a day in jail after they swindled tens of millions of us out of our life savings, jobs and homes just rubbed salt in our wounds out here on Main Street.
Some of us understood that brutal austerity forced upon the serfs while the nobility dealt themselves all the economic rewards of "recovery" (after having absconded with the entire pot that their pre-2008 Ponzi scheme was designed to reap in the first place) was a recipe for revolt by the serfs.
And revolt many of us did. Occupy Wall Street, teachers strikes, support for the ACA and the Cult of Bernie were all ways of expressing anger that "trickle down" remained a cruel mirage.
But many of us failed to realize that scapegoating, Big Lies and demagoguery are far more powerful in times of stress and crisis than a messy but civil rollback of austerity.
And that's how we let the history of Weimar Germany repeat itself - leaving Western Civilization in the hands of Viktor Orban, Boris Johnson, Jair Bolsonaro and Donald Trump.
620
@Dave
retired history teacher and attorney F/71
You nailed it. Sadly, most of your references would be empty words to both high school and college kids today.
Remains to be seen whether our handful of Angela Merkel level moral leaders can muster enough strength to reopen The Hague. Start with Stephen Miller in Milosevic's cell and tRump in NY State prison for domestic crimes. Charged for our crimes against humanity at our border.
Recent re-read of our Chief Justice's Opening Statement at Nuremburg trials could be used verbatim in charging statements today.
Makes Boomers battles around Vietnam seem like kid stuff by comparison. I have little hope that any democratic havens can survive our Internet-driven cults and acts.
74
@Dave, right you are. Failure to prosecute even a few of the finance wizards who played fast and loose with the hard earned retirement investments of the middle class remains the cause of resentment of elites, more so, I believe, than Krugman's pointing to federal reticence on spending:
"I’d argue that austerity mania fatally damaged elite credibility. If ordinary working families no longer believe that traditional elites know what they’re doing or care about people like them, well, what happened during the austerity years suggests that they’re right."
44
@Dave
You wrote,
"It can't be overstated that by bailing out Wall Street while leaving Main Street to rot and fester was a titanic mistake by the Ruling Class on both sides of the Atlantic."
Well, yes, it can be overstated; has been overstated; and you just overstated it again.
And when people use the word "bankster", they sound like tea party nut jobs.
Plenty of blame to go around in the 2008 crisis. Sure, you want bankers to pay, but the poor local yokal
"good guys", well poor them.
These good guys - most of these "folks" buying houses they couldn't afford -- and knew they couldn't afford -- never once worked with a Wall Street banker, but a home-town, local banker. So where do you draw the line? Most, nearly all, but not all, of the finance people were following the laws as written.
Perhaps GOP voters, who's reps pushed hard to deregulate the banks and allowed the storm clouds to form, should think twice before the GOP liars pound the table about "deregulation."
Otherwise, you comment maybe feels good to say, because hey!...don't we all love a good spleen vent.
But its otherwise devoid of logic or facts, and is largely revsionist history.
And I lost my job during the great recession, and my family suffered. But at least I still have a healthy respect for facts, reason, and justice.
Give it a try; it won't hurt.
6
The Republican "austerity" had only one purpose: to make sure Obama didn't get to receive the political benefits of a functional economy. The goal was to hobble Obama and not give him a "win" on economic growth. This aligned with McConnell's goal of making Obama a one term President. The American economy was more than collateral damage, it was deliberately undermined.
1028
@Tom Sheeley
Trump made the economy a centerpiece of his 2016 campaign. Three years into his presidency, Trump relentlessly touts job growth under his administration. But it is important to note that 1.1 million fewer jobs were created during Trump’s first 33 months in office compared to Obama’s last 33.
Trump also promised to bring manufacturing jobs back to the United States. But manufacturing is now the smallest share of the American economy in 72 years.
Meanwhile, median household income, an important economic measure, has remained largely stagnant.
The stock market doubled under Obama and unemployment dropped by over 10%.
Imagine the greatness if Repubs wouldn't have fought him all the way.
99
@Tom Sheeley
Exactly and perfectly summarized.
47
@Tom Sheeley
Yes, absolutely! These people are far worse than hypocrites.
34
This isn't a booming economy, it's a booming crime spree as the greedy are taking the money and running to foreign lands far away like locusts who have laid waste to a fertile field of rich crops.
I'm so glad you explained in the simplest of terms, the difference between a family budget and a national economy in terms of money in and out. It was well put for all to comprehend. There is a difference. Before the Republicans had adopted the practice of "Austerity", I had put a note on my wall to remind me to control my personal spending and I was shocked that later, the Republicans did the same thing with the wider national budget.
If there is a great lesson to learn it is this; Congressional leaders are political and mostly lawyers who for the longest time should have relied on experts in specific fields for in depth analysis and ideas to adopt, but like anyone who holds power, they came to think of themselves as the experts in all fields, when in fact it appears, the political leaders were fooling us into thinking it was their ideas, but behind those ideas were self serving greedy lobbyists serving corporate and wealthy people's wants. The best example was the 2017 tax cuts legislation that had to be desperately offset by the Tariffs taxes on we consumers.
You can't expect a bunch of lawyers to understand economics in depth. Hopefully, your writing will enlighten the enlightened in Congress.
277
@PATRICK - Here are the real differences between the the federal budget and a family budget.
1. Thru the FED, the federal government can create as much money as it wants out of thin air. It will run out of money the day after the NFL runs out of points.
2. It MUST create money and spend that money via deficits so that we will have enough to conduct commerce, to buy and sell goods and services and so that banks will have reserves to make loans and not become overleveraged,
19
@Len Charlap
Republican free marketeers might find your remarks foreign to their mandate. Len, here you assume the Federal Government determines economic growth, but actually Wall Street symbolically does as it helped export the value adding profitable manufacturing disciplines. We can't simply continue to print money, we have to earn it in tangible ways or our wealth will only be a mirage. If manufacturing is rebuilt into a profit machine once again, then the banks will be well capitalized and able to endure hardship. On another point about the banks, they tricked us away from savings accounts that paid us interest to now all of us being indebted to the banks for credit we pay the interest on to them. That was a Republican idea as well as the loss of manufacturing and investment capital to foreign lands. And just for fun; I thought printing money was illegal. I guess for some, but not others.
6
@PATRICK - Wall Street cannot create the money we need to conduct commerce and that banks can us for reserves to make loans. Banks can create credit money (low powered money), but all that is is an IOU to give you money created by the government (FED), i.e. high powered money.
If banks make too many loans, create too much credit money, the banking system has a crisis as in 1929 and 2008.
Basically the federal government does exert a lot of control over the economy by the amount of high powered money it supplies to the private sector--too much, excessive inflation; not enough, recession and even depression.
13
Since we are now at or near full employment levels in the U.S., Keynes would no longer be advocating for governments to be spending to offset the lack of demand in the market. However, it looks like we will be running trillion dollar federal government budget deficits at a time where it is not needed.
Just another example of economic fiscal policy not being what is needed at the time.
2
I watch two accounts for different elderly relatives. One is a savings account at a big bank. The $15k on deposit puts back about 1%.
The other one is low seven figures, a brokerage account professionally managed by a reputable bank. It has returned 8-10 % per year in the last two years.
You must prove government does not work for the masses by making sure it does not. Deficits will matter after the Blue Wave of 2020 and the GOP will suddenly care again....
1
I don't see corporations trying to retrain workers who are over fifty. there are no jobs for those who worked in factories, administrative secretaries etc... if you do coding such as silicon valley then you are set. if you can afford 500,000 dollars for a one bedroom house. that is why many millennials are now back living with their parents once they finish college.
there should be an effort to encourage people to go into jobs or training such as plumbing, electricians or other trade work jobs. I worked for 18 yrs as an operating room nurse. I also had a BSN. I lived in KC, MO but received no extra money for finishing my bachelors degree.
2
@jennifer t. schultz
Trade work is nearly subsistence, now, with the high cost of healthcare, insurances, and the larger retailers taking over the job of the old wholesalers.
1
I saw it first hand in Wisconsin. I marched with teachers and state union workers. The GOP austerity measures are punishing the working and poor for the greed and plunder of the wealthy. 2008 needs to be brought back into focus. Thank you for this article. Pentagon contractors plundered the national budget in Iraq and Wall Street led a housing loans and banking scandal. Here in Wisconsin, teachers and state workers were the the scapegoats. The Trump brand of GOP continues to abandon the worker, while awarding the richest with the largest tax breaks in history, while remaining silent on unlimitted money in politics to serve the lobbyists of global corporate monopolies. It peddles hatred and division at the expense of wages, healthcare, the environment, the infrastructure - all things for the common good of the nation. 2020 is here and its time to unmask the lie being played by this administration. It is time to repeal and replace this leadership for the sake of social justice and the common good of the nation.
10
The only party against deficit spending is the party out of power. Period.
1
The Republicans are pulling out all the stops presently in making sure the stock market party continues until the 2020 elections are over. With a politicized and cowed Federal Reserve making sure rates stay low and there's plenty of liquidity flooding the repo market which by any other name is Quantitative Easing (QE) the good times should continue till November. After that then I suspect reality will set in and right quick. Of course that's when Mitch McConnell will set his sights on decimating Medicare and Social Security by hook or crook , all in the interest of saving the Country from bankruptcy. The corporate right wing media will do what they're paid to do which is propagandize in full support of it and the mainstream media will do what they always do and agonize over how they should report the ending of any and all of a public safety net for working Americans. The Democrats need to scare every voter into voting Democrat in 2020 and when I say scare I mean telling them the truth of what happens if Trump and the Republicans win.
6
Democrats have a lot more to answer for than austerity. After all, it was a Democrat in the White House who pushed for NAFTA and permanent normal trade relations with China, a Democrat who deregulated banks, a Democrat who cut welfare, a Democrat who wanted to privatize Social Security, a Democrat who bailed out criminal bankers and left millions of homeowners to lose their homes, and a Democrat who promised a public option in healthcare and no mandate but delivered the opposite, also minus the promised affordability and the option to keep one's doctor.
On the other hand, Trump also has failed to keep most of his promises (partly due to Democratic obstruction) and has proposed or done some terrible things. But did deliver a minor tax cut for ordinary taxpayers (though the cuts for the wealthy were much greater). So from the standpoint of an ordinary voter hammered by both conventional Democratic and GOP administrations for the past 40 to 50 years, the latest president has produced one modest benefit -- an unheard-of rarity. How do we think this will play out in November?
1
i sometimes wish the NY TImes columnists had the purview to comment on their colleague journalists' work; dr. krugman's light scold of deficits in this column would make an interesting gloss on today's feature on the trump tax code, a code that is pushing deficits through the roof in the name of prudent corporate welfare.
i simply can't follow dr. krugman's reflex to trace everything back to a malign political party and the duplicitous dumbskulls who pledge allegiance to it.
true, it's a sad spectacle of human nature, cowardice and careerism and corruption and opportunism: but it's human nature all the same. read thucydides.
many things are happening at once in our era, not least of them our denialist moral cowardice in the face of climate change. but what is happening is happening to a people -- misled, confused, short on facts, long on conspiracies; used, abused, taken to the cleaners, led up the grandin chute and sold florida real estate.
i think if you focus on the victims and their needs first, the right remedies will follow. instead, we have become an amateur malpractice society, always looking for scapegoats and villains, whether they play a serious role or not.
yes, republicans on the whole are misguided; no, they are not the reasons for a rigged financial system, a carbon intensive energy economy, and a population bred for profit and sold into a future that can best be described as tragic.
1
With interest on the debt as a share of GDP getting higher every year, and projected to surpass defense spending by 2023 how is it warranted not to have austerity at this point? By 2030 at the rate we are going, interest payments on the debt will be higher than Social Security. Can we keep adding to a new credit card forever without bankrupting the country? Surely anyone can see that the current rate of debt/spending and interest payments is unsustainable; and with an economic downturn any year now it will not get better. Soon our taxes would be paying mostly debt and not essential services and benefits for the population.
With all due respect @James, I don’t want to see the same people who lost jobs and homes a decade ago go through the same thing again...I also don’t want to see Grandma and Grandpa have to sell their home because of healthcare costs or an end to their social security. How would your austerity proposal work? Who would be affected?
1
I don't think that the "good times" are here because of Trump. I think that Obama bailed out the country, got repaid and, despite GOP obstruction of his intelligent programs and proposals, has, over time, led us to this point. What Trump is doing is reversing this process. The middle class is disappearing. Farmers are living off of Democratic socialist support while those of us that have money in the stock market are benefiting from corporate tax beaks.
Americans who believe it possible to vote our way to freedom from oligarchy under the current system should research Pay-Go, the Democrats’ preferred method to inflict austerity on their constituents.
1
@Steve Bruns
With all respect, that's totally absurd.
Yes, the GOP systematically abandons the "pay as you go" rule, whereas Democrats systematically reinstall it, as soon as they control DC.
The rule means that no bill shall be signed into law if it isn't fully paid for.
"Austerity" means cutting spending.
Those are two VERY different things.
You can cut spending all while cutting taxes even more, and then you increase the deficit, all while implementing austerity measures.
And you can increase spending a LOT, all while respecting the Pay as you Go rule, as long as you increase taxes or cut out waste elsewhere simultaneously.
Pay Go simply means that if you pass a new bill, you have to make sure that includes a measure to pay for it, so that it doesn't add dime to the deficit.
And Democrats only Apply this rule outside of Great Recessions, of course - for the reasons that Krugman is explaining here.
1
@Ana Luisa You are applying household economic principles to a monetarily sovereign nation. That is what is totally absurd.
1
Read Thomas Piketty new book : " Capitalisme et ideologie ".
Inequality is not an economic situation created by markets but a choice of ideology and that ideology is in an imposed historicity .
The nation with the worse inequalities are the nations most historically shaped by slavery : The USA, South Africa and Brazil.
History of modern economies and their ideologies .
25 Euro .
It is being translated into English.
https://www.ft.com/content/0b362d6a-df2a-11e9-9743-db5a370481bc
1
What a fascinating data point — which, of course, explains the imbedded racism in those counties (which includes ours), as well. I hope to read Picketty’s work to learn more about his thesis. Hopefully, others will, too. Thanks for the suggestion.
1
@Smsinsd Just that a French economist dares to write about capitalism and the history of the economy of the USA must be an insult to most Americans. And of course he cannot know what he is talking about . Also because he is a marxist ( which he defends himself from being .. the concepts he uses are not really marxist ).
1
A more appropriate cover photo would be of Mitch McConnel and Paul Ryan.
They, and their Republican supporters, did permanent damage... And helped til the soil for the growth of Trumpism.
4
Millions of older baby boomers lost everything at an age they won't recover from.
2
Unfortunately, it wasn’t just Republicans who thought austerity was a good idea. I remember Obama talking about a “pivot” from stimulus to deficit reduction, like macroeconomics is a basketball game.
And Obama I remember Obama offering to cut Social Security (unsustainable!) in exchange tax increases from Republicans, AKA the grand bargain. And I remember Clinton saying that cutting Social Security was reasonable.
And I remember Obama freezing (cutting, in real dollars) federal workers’ pay. You know, “we’ve all got to tighten our belts” austerity nonsense instead of viewing federal workers’ pay as a driver of spending and growth.
Maybe Democrats didn’t drive austerity, just like Democrats didn’t drive the Iraq war. But they supported it, they voted for it, they enacted executive orders in support of it... in short, they were complicit in bad policy.
And now that I read the above, very short and incomplete summary, I rethink. Maybe Democrats WERE driving austerity, right alongside Republicans.
Sadly, I think Democrats were genuinely interested in controlling the debt... in other words, they were rubes, suckers, or maybe “useful idiots” in the Republican drive to destroy government.
Not a pretty picture.
3
There is no doubt among economists that Obama supported banks when he should have supported borrowers. He responded to Wall Street imprecation when he should have helped Wall Strre by helping it’s victims, as FDR did.
This is his greatest shame, his most profound betrayal, and the effects linger to this day. Black and Latino families lost a generation of wealth and family-centric homestead. White families lost only their “flipper” profits. Shame.
2
@DHP He did what he could. Getting rid of the US banks during a crash would have stopped our ATMs from dispensing cash. The credit economy is what keeps us working, for better or worse. You are advocating a completely different kind of economy.
1
On the one hand we have a Nobel laureate, Dr. Krugman, explaining the nuances of a troubled national economy while on the other hand we have the national official most responsible for economic policy, one Donald J. Trump. Mr. Trump is a notorious non-reader who probably uses the New York Times to line his bird cage. Any national economic progress would appear to be highly unlikely.
2
The NYT does not like structuralism. But it seems that Paul Krugman is slightly changing his ideas about the deficit , or rather the way the deficit is understood.
An idea developed by the Modern Monetary Theory . Stephanie Kelton, etc...
It is time to redistribute wealth and fund the necessary infrastructure to change technologies against global warming and for that we need a global education investment and a global health system .
https://www.vox.com/future-perfect/2019/4/16/18251646/modern-monetary-theory-new-moment-explained
@JPH Any deficit spending could be seen as movement in the direction of completely disconnecting spending from taxing.
However, the difference between some and all, addition and multiplication, credit and default, is important.
1
where is Max Robespierre when the nation needs him?
1
Floods, fires, killer hurricanes, receding coastlines, crumbling infrastructure, growing drug addiction, mounting violence. This is what we got by failing to secure Al Gore's victory in 2000. He was the only presidential candidate in my lifetime who focused his campaign on solving the biggest problem facing humanity: climate change. If he had been able to take office and at least try to enact some of his proposals -- even if he only got a quarter of a loaf -- the world would be in much better shape right now. Much more government spending could have gone toward productive uses like renewable energy and building a smart grid instead of endless wars and tax cuts and subsidies for oil and coal producers. The world would be a better place. Not perfect but a heck of a lot better than it is now. I pray it's still not too late but who knows?
5
@Dave We don't know that the world would be a better place now, but we do know the mess created by G W Bush which continues to haunt us to this day. Never really hear much about him anymore besides his (guilt inspired?) art project.
1
@Dave Gore also planned to stop the government from raiding the social security fund to use as part of general budget. His word was a "lockbox." I was only in my early 40s when Gore ran against the unprepared Bush, but even then I knew that social security was one of two bedrocks of any good nation. (along with great and accessible public schools) Now as I enter retirement, I fear the decimation of both.
1
Right on, Dr. Krugman!
1
Destructive authority ...
Paul Krugman is becoming a structuralist ?
There is progress.
Is it unintentional or it sounds like a thesis from Jacques Derrida ?
As if you analyzed the negativity from a double introspection.
Austerity and destructive.
Austerity is supposed to be productive in the protestant ideology.No ?
Sorry to put a French rhetoric on your trying to make sense of an anglo behaviorist analysis.
Double negative works also that way. Double double.
Be careful of how positive it can become.
1
Nothing will ever change as long as we do nothing about our vile justice system.
1
Truer words were never written this year in the NY Times.
1
"For as long as the foreigners will give us real goods for paper dollars, we'll keep on printing." - your privatized government at work
1
Republicans were feigning austerity for fear the debt would be passed on to their children, shudder the thought. But as noted, they've since been proven to be phonier than a $3 bill. I just wish Democrats did a better job of attacking their hypocritical counterparts by expounding on what austerity in American would truly look like if we called their bluff. Not many Americans, especially most of those proud Tea Party advocates, have tens of thousands to spare to support the paying down of our national debt.
1
I'm into macro-macro-economics. Of course as you likely guessed, I'm somewhat vague about much of it to kid around, but one thing I guess is that a measure of an economy is the sum total of capital flow throughout that economy. So to me, it's obvious that Austerity is going to curtail the flow of capital in the economy resulting in micro-micro economics in the family budget suffering and from there, less capital flows mean less tax revenues leading to even greater forced austerity. So it seems to me austerity is stupidity on the grand scale. But it worked to make the rich richer and it's not trickling down, it's trickling out of the country and it can't end well. That reality was likely by design. Austerity had to be a Wall street idea.
1
Very insightful column. The main reason Republicans were austerity advocates, in my opinion, is they did not want President Obama to get credit for pulling the economy back from the abyss. They hoped the lasting recession would keep him a one-term President. And they hope now that we don’t remember their utter hypocrisy.
2
Paul Krugman (and a few others) have been trying to explain the whole problem with fiscal austerity in lean times--and the Republican hypocrisy regarding budget deficits when THEY are in power--for a long time now.
But perilously few people understand the arguments, let alone have been swayed by them.
Could the lack of economics and civics education in our primary and secondary educational systems have something to do with that? Maybe a little?
It's not a surprise that the party of bankrupt economic ideas is also the party of reduced education funding, starving public primary and secondary education of tax revenue.
It's a lot easier to promulgate ignorant economic ideas to people who are themselves economically pretty ignorant.
2
"And would we have Trump if years of wrongheaded austerity hadn’t delayed economic recovery under Barack Obama?"
The Republicans that pushed austerity deserve Trump as the leader of the GOP, but the rest of us do not deserve having him in the Oval Office destroying everything of value by his cruelty, divisiveness, and ignorance of our Constitution; and we would not have him as president if we did not have the electoral college rather than the popular determining who wins. The majority of Americans did make the right decision about Trump.
1
Republicans aren’t phonies, they just want power. Their statements, whatever they were in the past were just failed sales pitches. This guy Trump, the master huckster, was what they were looking for all along. As long as the people are buying whatever he is selling Republicans are behind him. Fiscal responsibility seemed to be the only pitch for years because it was a responsible answer to Democrats arguments for spending on healthcare, infrastructure, education, education, and other wasteful initiatives. Now that they have Trump, they can dispense with esoteric fiscal vagueness.
1
Paul Krugman is absolutely correct. The Republican leaders were absolute phonies and hypocrites. They sabotaged the recovery. I was also very surprised why President Obama did not immediately pass a huge infrastructure plan. Which Democrats prevented this?
1
@Valentin A I was reading the news back then. The Democrats in Congress wanted more infrastructure spending, and the Republicans wanted more tax cuts for the rich.
1
Please, don’t blame the GOP for Mr. Obama’s incompetence. Mr. Obama is a smart man with no leadership ability, whose timidity and fear of conflict was apparent to everyone from the first days of his administration, especially so to Mitch McConnell. During his first year in office when the Dems had complete control of the government he was AWOL. His sole achievement, Obamacare,
turned out to be the greatest political catastrophe in American history. We will never know whether he opposed or favored austerity, he seemed to regard any dramatic public policy appeal to be beneath his dignity. He should never have run, he should never have been nominated. Austerity did not elect Donald Trump, Mr. Obama did.
1
@kbaa
Wow. So let's see, when President Obama came to office, the GOP economy was hemorrhaging 800,000 jobs per MONTH. The annual deficit was $1.4 Trillion. Banks were in free fall and and endless, pointless war ion Iraq was taking thousands of American casualties and hundreds of billions or dollars.
Into this Republican paradise, President Obama brought a prudent mind faced with unimaginably awful choices. He saved the auto industry --and made money doing it, saved the banking system against its will -- creating the world's strongest banks, invested in a variety of new technologies -- and despite Solyindra, made money at it. He brought health care to millions who never had it before despite GOP saboteurs along the way who vowed a "fantastic" replacement that has now been seen for the lie it always was.
In his last three years in office more jobs were produced than in Trump's first three.
I disagreed with some of what President Obama did, but I'd prefer him any day over the pathetic loser Trump, who is unfit to sit behind Mr. Obama's desk.
2
@kbaa What do you think was the essential quality he lacked? That special something which made the Right attack him? Which made the white Left fail to support him? Lack of “Leadership”?
1
@Jack Agree with all you say, Jack, but the facts in general and the economic facts in particular are irrelevant. The public needs to be led and Mr. Obama was not a leader. The consequences are Donald Trump and the current lunacy.
1
Agree. Trump's phenomenon, ugly as it is, is just a symptom of an exercise in inequity where austerity was a most shortsighted thing to do, as the hope, when private industry is down, was for the government to pick up the tab. Do you think we were just playing politicking...while ignoring reality, and labor's anguished plight? Incidentally, the damage done by the current vulgar bully in-chief (and pushed by republicans), by having raised the deficit astronomically, may not become fully apparent well after Trump is ousted. Who said that stupidity is inconsequential?
If expertise as publicly paraded is so much charade then taxing elites highly and ignoring advice may be a good idea. The deep question here is how to train elites so that the concensus analysis go beyond self-serving to best for the country. It may be that rule by public opinion poll is the best the U.S. can do. This is not very heartening.
1
Hannity, Limbaugh and Co railed against deficits and faked grave concern for our kids and grandkids in the Obama years. How laughable and hypocritical, now they don't say boo about massive deficits. This is a fairly good economy, when it recedes deficits will totally explode. Then we'll see the austerity cuts, then we'll see social unrest. And they'll blame, well, take your pick.
1
Obama had to turn the economy around with ZERO cooperation from Republicans. They demanded that half of the Stimulus take the form of tax cuts for the wealthy. They then falsely railed about a "trillion dollar spending spree." Now Trump rides the Obama wave and doles out more tax cuts to the wealthy while demanding NO AUSTERITY and cowing the Fed into submission. It is truly crazy.
1
Policy didn't take a wrong turn a decade ago; it was a calculated move by the GOP to hobble Obama. But that period of austerity is only partly to blame for our current mess. The real problem is a cultural one between the two major political parties in America.
The GOP, in lockstep, enacted a massive tax cut for the wealthy. No effort was made to provide a viable explanation for how it would be funded. Fox News heartily supported it. Meanwhile, Warren came under fire for how she would pay for Medicare for All. She had to deal with it, otherwise the liberal media would have torn her to shreds. That is the problem. Democrats eat their own.
Democrats think policies will see them through, that voters will be drawn to the "better angels" of human nature. But that won't happen unless it is made to happen. Persuasion is key. Democrats should tweet out that Trump is a traitor, and we know what America used to do to traitors. But they won't do that. It will "sully" them and make them "impure." They will not fight fire with fire, so they will never be on a level playing field.
When the end comes, Democrats will tell us that they fought the good fight, and that is what counts. But no one will care. Because the fact that they lost is all that will matter.
1
I'd expand the idea of damage from austerity.
Many don't merely think the elite are incompetent. They think the elite are thieves and liars.
They don't merely distrust them. They feel a deep simmering anger at them, and desire to defeat them, to fix what was done to us by the elite.
4
@Mark Thomason That is how a lot of people feel. What’s missing, though, is clarity about who the “elite” are. Billionaires or scientists? Actors or military? Ranch owners or farm workers?
Middle managers or public servants?
1
I don't blame Obama for much - but I do blame him and those financial elites he relied upon for not bringing to justice those individuals and firms most responsible for the 2008 crisis. Wall Street speculators and their ilk were left untouched, and the message hundreds of millions were left with was: 'Sorry you've all been massively ripped off, but bringing the guilty to task is be too costly for society. We'd like to hold them accountable, but we can't afford justice.' Not only was this morally indefensible and repulsive, but one was also left with the sense that these 'untouchables' were friends, part of the circles men like Geithner and Paulson and others, and perhaps even Obama had cocktails with from time to time, moneyed pals that might be useful to them in future careers.
When you tell people that justice has a price tag the rich can't afford to pay - but you the hoi polloi definitely can and will - you get a Trump. Obama led to Trump in a way he should have foreseen.
2
@AH Would that have been a good time for “society” to pay that cost? The cost would include bypassing the Republican justice system, of course.
I think that plan is more post-revolutionary than liberal-democratic.
1
@David Reinertson You mean the Pecora Commission was post-revolutionary?
1
One can accept honest disagreements if they were indeed honest. What is hard to accept is the disingenuous political expediency that drives economic policy. Deficits are only an issue for the Republicans when the White House is occupied by a Democrat; otherwise deficits are said to be overrated. The Republican mantra is: your problems are your fault and my problems are your fault too....
1
Krugman describes the Republicans as "phonies" who were deficit hawks during Obama's reign but ceased being so during Trump's reign.
I think the term "phonies" is not accurate, or at least it misleads people seeking to understand the true explanation for the behavior of those Republicans.
The real explanation for the behavior of those Republicans, as well as for the behavior of nearly all Republican politicians and Democrat politicians is simply that they all suffer from the disease of intense partisanship. To intense partisans, nearly every policy pursued by a president of their party is rightful and nearly every policy pursued by an opposition party president is wrongful. Furthermore, it doesn't bother them in the slightest when a president of their party pursues a policy that they opposed when the same policy was pursued by an opposition president.
Such is the stupidity and evil of intense partisanship....regardless whether the partisan is Republican or Democrat.
1
No, the politics of today are not of recent vintage but trace their origins to the closing of the gold window and Volcker's quest to make the USD glitter as gold; it set America on the course wherein their exports were non-competitive while imports were subsidized by our privileged currency. Along the way we heard first that the trade deficit was meaningless right up until now when Dr. Krugman suggests the national deficit (debt?) is worse than meaningless. The deeper story is one valuing capital as an end, not a means; it's proponents were mostly motivated to change the rules out of frustrations about the inability to reign-in social spending. Thereafter, capital was freed to savage sound companies, deconstruct 'dilapidated' economies and bid down the wages of working men and women to the advantage of a new financial elite whose work manipulated currencies, interest rates, and financial innovations far beyond the ATM. If anything, the 'new politics' of division and hate girds the new financial order and portends endless rancor and little real progress understanding the giant sucking sound wrought by bloodless technocrats doing the bidding of the world's wealthiest elites. Limiting ones view to a decade ago is deliberately short-sighted and serves a self-aggrandizing status quo.
1
@Scott An economy based on bartering gold is less stable, not more. Only a democratically elected government serves the people. Getting rid of our credit economy wouldn’t get rid of “elites”, since they are part of a political platform, not an actual category.
1
"In short, we’re in the mess we’re in largely because of the wrong turn policy took a decade ago."
No Paul, in short, we're in the mess we're in almost entirely because of Ralph Nader's selfish decision to run for president in swing states in the 2000 election.
1
Another excellent column. I agree in particular that austerity in Europe destroyed many political parties and unleashed fascists because the left wing parties revealed themselves as capitalists. Obama and most Democrats folded like wet paper and gave into anti-deficit lies as well.
Unsaid in the column is why we have continuous recessions and hard times for working people. We live under monopoly capitalism that needs to be replaced by democratic socialism and then the worst of these economic cycles will end.
1
Could there be a method to their madness? Maybe we have a case of perverse incentives here with one major party working against the best interests of the population. Republicans get votes from angry voters. So perhaps they want to get them angry. The fiscal austerity accomplishes this purpose by squeezing them economically. The solution is to get rid of them. Vote them out of office, All of them.
1
This will make me sound crazy but why would a patriotic party like the republicans support policies that give the wealth of the country to rich people and international elites at the expense of their own constituents? Perhaps the republicans have been owned by foreign money for decades? Why else would they block all investment that would make our country stronger? It’s certainly worth the investigation.
2
As any Republican will tell you, 'austerity' is easy when a Democrat is president. And 'austerity' is unnecessary when a Republican is president. As we can see right now. All of this is true because 'hypocrisy' is *the* core Republican political principle.
1
I would suggest that for the U.S. and Britain the "mess" began with Reagan and Thatcher.
Austerity was and is seen as the only way to kill off creeping socialism.
Starve the beast (the government) may be a good campaign slogan but, as Merton pointed out more than 80 years ago, there are "unanticipated consequences" and political instability is one of them.
Happy New Year Professor.
1
"..but it’s a lot harder to denounce a scam artist when you yourself spent years promoting destructive policies simply because they sounded serious."
Indeed, however, Regressives and reactionaries continue double up on their faux anger and resentment. Indignant would be a better explanation. This level of adulation simply isn't normal for any president, whether you support them or not.
1
Austerity for whom?
Not bankers, CEOs, hedge funders, real estate speculators, corporate farmers, Boeing, defense contractors, hospital administrators, doctors, corporate lawyers, luxury car dealers, lobbyists, the Sacklers, narco cartels, private prison operators, Silicon Valley bros, for-profit mercenaries, internet idols, NBA/ NLF/MLB players, McKinsey advisors, carbon climate crime bosses, corporate crisis managers, etc.
Almost never does austerity reach the top of the food chain.
It's patently obvious that there's one kind of economy at the top and a totally different economy for everyone else below.
The top economy is socialized: the Fed pushes cheap money to the rich and corporate, which they use to make more money, bribe politicians to cut their taxes, and lend to desperate borrowers at 25% or more.
The lower economy is dog-eat-dog: a paycheck away from eviction or the repo man, gig work, minimum wage, stand your ground, religious zealots, shooters, Black while driving, opiate addicts, battered wives, morbidly obese and a lower life expectancy.
If austerity touched the top, it was giving up the 4th vacation home on Lake Como, downsizing to a Land Rover from a Lambo, skipping the Picasso auction at Sotheby's.
It's a fiction that we're in the same boat. We're not. Most of us have life-vests on and are bobbing in the ocean while the pre-ordained watch from the balconies of bloated luxury liners.
Austerity is the rich saying "so long, sucker."
4
Republican economic policies have never worked and never will work. It was a never a serious plan and it was always a scam. The old adage that the rich get richer and the poor get poorer is remarkably true. They know it and don't care.
1
The hypocrisy of these Republicans will catch up to them one day. Their base - rural white voters - is shrinking. An article in this paper, I believe, pointed out that after the 2020 census, blue states will likely gain seats in the House while many red states will lose seats. There will be fewer votes for “austerity” and tax cuts for wealthy campaign donors. The trend is expected to continue.
1
I live in the DC/Baltimore area and in my circle of friends it's plain to see that the Federal Government is spending like a "drunken sailor" now.
One of my relatives was one of four consultants brought in to re-write an RFP, after seven months they finished the re-write, but the people in management at the client site decided to submit the original RFP. My relative said "this happens all the time".
I guess the "good" in all of that is that those dollars from the U.S. Treasury went to those four consultants and their bosses, but the fact that they were not doing anything "productive" is a shame.
1
I am a Keynesian economist like Krugman, but he is trapped in a liberal bubble.
There is so much waste of American taxpayer dollars: food stamps, welfare, housing projects, extra police because millions of Americans think violence is the answer, drug clinics, funding to urban schools where truancy is rampant. The list goes on.
I want to keep my hard-earned money.
1
Austerity was always meant to be destructive. It was a way for politicians of all stripes to "rein in runaway social programs". Then once austerity had reached the limits of social revolt, the programs were 'stabilized', just in time to pass huge tax breaks for the wealthy.
Worked in Australia, GB and the USA.
Even the supposedly enlightened economies of the USA, Australia and GB only care about the common people in the lead up to elections, then it is back to corporate business as usual.
It's the Donors, stupid.
We are being ruled by a Donor Class that not only finances the elections but also offer very lucrative next jobs if they toe the corporate line.
“ There is only one party in the United States, the Property Party … and it has two right wings: Republican and Democrat.” ― Gore Vidal.
1
“If something cannot go on forever, it will stop.” This aphorism is attributed to the Republican economist Herbert Stein. He was talking about federal budget deficits relative to GDP. The last GOP President to bring in a balanced budget was Calvin Coolidge, almost 100 years ago. That sums up where Republicans are, but Democrats always run cowed and scared they will be labeled Big Spenders. Caused a timid response in 2009. Dems passed a tiny stimulus bill in the face of the worst crisis since the early 1930. Didn’t do much, and most of the timid, moderate Dems lost their seats anyway. Some Dems this year, notably Warren and Sanders, are not cowed by Republican hypocrisy on this issue. Yes, Herb Stein was correct to posit that the federal debt cannot grow forever, but forever is a long time and is not next year. If victorious, I hope we don’t see a Democratic President hamstrung by timidity in her own party. As for Republicans, they will howl to high heaven about “fiscal responsibility.” Bullocks.
1
Krugman's analysis of the destructive impact of the misguided push for austerity is accurate, but neglects to name all of the perpetrators. Politicians who wished to be seen as Very Serious People were central players, but they were aided and abetted by journalists who, due to (a) their ignorance of economics and (b) their cowardly unwillingness to challenge popular politicians, and the polities that supported them, allowed bad arguments to gain currency a decade ago. The current crop of journalists is just as cowardly, because they still treat Trump's tweets and lies as if they merit serious attention, rather than recognizing that they represent the sad ravings of a victim of mental illness in need of medication and therapy.
1
You should also take down the idea, so common today, that what really matters in the the current political divide is race and identity. “It’s the economy, stupid” is still true. When people are busy earning a living wage, those other things matter a lot less. When they’re not, they become vulnerable to demagogues. It’s really an old story.
1
And all through the period of austerity worship, the NY Times and other newspapers where there to uncritically endorse austerity and mindlessly dismiss any challenge as not serious people (even when it was economists such as yourself) while salivating at the idea that sacrifices were demanded from the common people in blood tribute to the lords of capitalism and the deficit. Where everything else from global warming to Republican crimes to racism required homage to false equivalences and "who can really say what is true" journalism, austerity was always the one true faith.
3
"...hobbling the ambitions of center-left governments." Krugman nails this one, what better way to win back power than to deny the opposition the tools to do anything constructive! This has been the strategy of the republicans all along, and achieving power has always been the end game.
1
The point about austerity not being a good idea during an economic recovery from a deep recession is true. Everything else is basically less. Obama's economic team thought they had enough stimulus. One can blame Republican obstructionism all they want, but Obama's chief economic advisor advised against greater stimulus. This is on record from the famous Summer's memo, published years later in an New Yorker expose. Why the turn to austerity? One answer that should definietly be discounted is the evils-of-deficits-make-you-sound-serious. Corrupt, stupid, willfully ignorant, arrogant, entitled, disconnected, evil, maybe, but definitely not serious. As for cutting social programs and hobbling center left governments, that's hard to square with Obama's embrace of austerity, and the Democratic party in general, mainstream economists, and the Democratic campaigns following 2008 onward. Obama's economic team thought deficits were truly evil and self defeating, they did not embrace austerity to appear serious. Obama and his economic team that throttled stimulus did not have ulterior motives or wish to sabotage their own center-left government. Politics was dominated by Clintonism, capturing the center, embracing Republican lite, and protecting blue dog Democrats. Nice try, blaming Republicans for being, well, Republicans, instead of the failure of Democrat policy.
1
This is not complicated. Republican policies (fiscal and otherwise) hurt everyone except for greedy millionaires and greedy billionaires, (I use the term "greedy" not as a pejorative, but to exempt those very few rich who understand that we are, or are supposed to be, a society, not an oligarchy,)
The only way to reverse the upstreaming of all the wealth to those who do not need it is to vote, and vote for Democrats.
1
If the Democrats ever win the presidency, the next day the Republicans will have a deficit clock up in Washington, and out here on the West Coast, I won't need my hearing aids to hear them scream about it.
2
And this corrupt tax-cut put the nail in the coffin of the lives of future generations.
Republicans have doomed this country for future generations, if not permanently---we are well on the way to third-world status and the destruction of the planet.
Sadly, I hope my children never have children of their own---they will suffer greatly.
Of course, the world will not end.
Only the life on it.
1
Republican leadership gets its marching orders from the very, very rich and their camp followers. For them, economics is a science when someone's hypothesis or white paper can be used as a tool to justify their conduct. even if there is little or no evidence to support its validity.
The laughable Laffer Curve hypothesis is a perfect example of such sand castles, as is the infamous Trickle-Down Theory. History and examination eventually reveal these ideas to be worthless and empty.
On the other hand, if the economics points to a method that favors the 99% OVER the 1% (God help us!), then it is dismissed at quackery, bullied, shouted down, pooh-poohed, and stomped on by the politicians and the conservative foundations' highly paid mouthpieces.
Remember when George H.W. Bush dismissed trickle-down as "Voodoo Economics"? He was right, of course, but then he drank the KoolAid handed to him by Reagan, and he became a true believer. For a while, you could even read his lips, but then reality set in and he had to raise taxes.
1
The Disastrous financial austerity will pale in comparison to the price we will have to pay for the republican destruction of public confidence in expertise in general as well as science and government. What Ronald Reagan started with his scariest words, “I’m from the government and I’m here to help” has now become the republican demonization of anything “intellectual”.
When Louie Gohmert said, “Mamas don’t let your babies go to Stanford or Harvard” he should have added the next verse, “Let them be know nothing science deniers instead”.
History will mourn the republicans success at turning America from the nation the world looked to for intellectual leadership into the nation the world laughs at as it plunges headlong into its own dark age of worshipping mediocrity and idiotic conspiracy theories.
1
I like to think of the economy as a giant super complex machine. Sometimes it works simply because there is no way to tell if it really working or it is pretending to be working. Maybe the economy is working because the technology is exploding.
Here in Quebec our optimism reflects our joy in realizing a secular humanist liberal democracy which is everything GOP America fears.
Our local university allows all students and staff to pick their own name and gender. Our local university runs all our health, education and welfare. This is who we are and who we wish to be. The only thing we need right now is workers.
We are godless heathens loving our neighbours , enjoying life and trying not to hurt anyone. What an abomination.
The economy is working or at least we think its working.
We are truly blest by whom or what the devil only knows.
1
You are almost there, Professor. Take the next step and tell us how austerity politics is part of the extreme right-wing "neo-liberal" agenda of constructing a fascist state run by corporations that have no restrictions on how they operate in the "free markets" that they control.
1
Are any Republican supporters and especially the impeached presidents base getting any of what the writer is explaining? I believe that when the Professer speaks of government spending he is talking in terms of not just giving things away but spending on things that are worthwhile. This is not that hard for some of us to figure out. Money is meant to be spent.
1
With deficits & spending as with everything else, Republican strategy is always to transfer more wealth & power from the public to the rich, and to block any expansion of (“small d”) democratic power. The political specifics of a given situation will dictate the ideological rationalization put forth by the GOP & Fox for their actions. They don’t need to worry about contradicting themselves; they’ve proved over and over that they can reverse positions from one hour to the next and their media will bring their voters along with them. I get tired of pointing out the obvious, but they are in fact much more like a crime syndicate than a political party.
1
dr krugman, as always, makes good points.
however, the american public is the easiest to lead into whatever corral their betters want them in.
just keep repeatin' it and most of 'em will believe it.
and don't bother mentioning other countries' experience because they don't count.
1
We ain't seen nothing yet. If Trump is reelected, he'll denounce his created "deficits," then demand that Social Security and Medicare be destroyed to "fix" the problem.
GOP Nirvana!
1
10 years ago the Tea Party was the driving force in the Republican Party and to a lesser but still significant degree American politics in general. Strong advocates of limiting the size of the federal government, reducing government spending, lowering the national debt and opposing tax increases.
Or so they said:
Turns out that ideology took a backseat to demographics and attitude: White, over 45 and very angry. In other words, a good portion of what is now the Trump base.
But what were they really angry about? Clearly not the deficit which is exploding under the beloved Trump. Not the size of the Federal Government (ditto). Obama's bank bailout? They seem to like Trump's corporate tax cuts and farm subsidies. Don't even seem to mind the Federal government taking land away from Texans to build an expensive and largely symbolic wall.
Perhaps the anger then was mostly about the untenable thought that "those" people might be getting help. The "wrong" people. Perhaps those protest signs filled with racist tropes at Tea Party rallies were not any more an aberation of a few than the racist and xenophobic tropes that spew forth the Twitter account of the President that commands their support.
It's as if the economic beliefs of the Tea Partiers were as easily discarded as the moral beliefs of White Evangelicals. It's as if all they ever really wanted was to make sure they had a President who would hurt the "right" people. Even if it meant Trillion $$$ deficits.
1
@LT - The Tea Party was not about deficits. It was about getting a Black man out of the White House. Their slogan was "Take Our Country Back". Back from whom?
Concern about deficits and the size of government was just a cover for that time.
2
Trump has presided over the first trillion dollar deficit in our history. The Democrats need to hang the sign "Trillion Dollar Deficit Man" on him.
2
Ah, history. If you don't learn its lessons you're bound to repeat them. Humankind is stuck like the needle of a gramophone in a groove of a scratched record and keeps repeating its mistakes over and over again. Haven't we seen all this play out before? An endless sequence of resits after failed exams. We humans are not the brightest students, for sure.
2
"..but it’s a lot harder to denounce a scam artist when you yourself spent years promoting destructive policies simply because they sounded serious.'''" not sure which progressive government have done that. In Hungary or England there has never been a very progressive government and the right wing thinking has always been there, just look at the second world war and who started the uprising (?) against the Communist regime in '56. In Germany the government was really center right and Obama was not a progressive although he could have been if not for the continuous attacks to him and his fundamental weaknesses.
1
Thank you Paul. I agree with the general drift of this column. However, if I were writing it, ahem, I would have added the following:
Some praise for Professor Mark Blyth of Brown University for his book "Austerity: the History of a Dangerous Idea" (2013) which contains the case studies, nation by nation, on how it wasn't working - praised on the cover by none other than Larry Summers: "Blyth writes in the style of Keynes...valid and compelling." I might add that the good Scotsman has an intensity for economic justice to go along with his laser focus on the economic history.
Next, and I don't know how you might have missed the cover story from a December issue (Dec.5th) of the NY Review of Books, which had a image of the "House of Economics on Fire" - a review by David Graeber of Robert Skidelsky's almost magisterial critique of the profession with a title right on the deepest fault lines running through political economy in the West: "Money and Government: The Past and Future of Economics." Don't you feel the American public would profit by an exposure to some of what Lord Skidelsky is saying...
And finally, hasn't the preoccupation with "austerity" been inseparable from national debts and deficits and gone hand and hand with the rise of Modern Monetary Theory, which has some startling things to say about why interest rates haven't responded the way classical theory says they should have with these double D's.
Just a couple of friendly edits, professor.
1
Ah yes. The famous two Santa Claus theory of Jude Wanniski (https://en.wikipedia.org/wiki/Jude_Wanniski).
Dr. Krugman's error is that he thinks that Republicans actually care about the economic plight of most Americans. They don't. Neither do the right wing populists of Europe. They care about power and nothing else.
It was to the advantage of Republicans to keep the economy from recovering during the Obama administration by any means necessary just as it was to the advantage of right wing parties in Eastern Europe to prevent recovery. Both wanted to prevent recovery in order to drive progressive governments out of power and put themselves in power.
As Dr. Krugman noted, left wing governments in Eastern Europe and our own slightly right of center President Obama decided to play 'responsible' governments by allowing right wing populists to win the argument against fiscal and monetary to dominate the political dialogue. That prolonged the recession and put the right wing demagogues in power.
Maybe it's time to retire the two Santa Claus policy and put a real progressive into the White House.
1
Totally agree. Austerity in the UK was largely pandering those who see everyone receiving social security benefits as ‘scroungers’. So people with terminal cancer and heart failure lost benefits because they couldn’t work, disabled people had their electric mobility scooters removed, and child benefit was restricted unless a mother could prove that the child was the product of ra*pe. There was a huge rise in attacks on disabled people because they were ‘skivers’ who were just pretending to be disabled. Awful stuff. Now thanks to prejudice and the incompetence of the Corbynites the architects of this nonsense have at least five more years in power. Although they have now proclaimed the end of austerity, without any credible explanation of why it was there in the first place. And in the US, trump giving billionaires tax cuts while taking food entitlements away from kids. Despite evidence that, humanity aside, investing in childhood development has very significant economic payoffs in the medium term. You don't have to be a communist to see how unfair it is. The scale of the hypocrisy is off the charts.
1
is the Republican Party not a white nationalist party? What is it but a political movement of white nativists who feel their power and privilege threatened by their impending minority status?
The Republican Party has long ago parted with the values and ideals of America. They suppress and undermine democracy, dishonor their oath of office, sacrifice national interests for Party interests. Their leaders are extremists who work, not for the people but for their party dominance and party values: white supremacy, nativism, christianity as "the opium of the people."
For many decades, many Americans have been unable to discern the truth about the contemporary Republican Party. It has no intention of working for the people. Too many people are misled by its lies and its propagandists, Fox and Fools and right-wing talk (conspiracy and fear mongering) radio.
The harm done over the 2010s is existential. It has led to the rise of a dangerous pathological narcissist as president, the undermining of national alliances, the near daily trashing of the Constitution.
But another devastating harm not cited by Professor Krugman (perhaps because it hit hardest at the close of the 2000s) has been the loss of income and wealth of the people. People who lost good paying jobs, who were unemployed, who went back to work for lower pay, who lost their homes, who had to cash in their children's education funds and their retirement savings. They will never recover from the harm done them.
2
Yes, and it is all part of the larger Republican Plan, as I have mentioned before, please research "The Two Santa Clause Theory" When viewed thru that "lens" it all makes sense.
1
Sadly, there's no curing stupidity. This country keeps making the same mistakes over and over.
1
Cut to the chase, Paul. Republican presidencies have, since Reagan, become nothing more than pillaging of the public treasury. "Phonies" is too weak a word.
1
Despite all of the complaints about media bias, there is one problem that could be fixed immediately by convincing ABC, NBC and CBS to stop wasting hundreds of hours of airtime each year on junk news. For example, each of those three networks airs hour-long, and sometimes two hour-long, so-called documentary series such as Dateline and 20/20 that routinely feature tawdry, tabloid-style, love triangle murders, instead of offering expanded reporting on news topics that are truly newsworthy. Also, each of the nightly news programs averages, I would guess, two stories each week about dogs. So, let's say that adds up to three minutes per week. That then adds up to 150 minutes per year, per network. Dog lovers obviously love dog stories, but dog stories are not news stories. Let dog lovers watch dog stories on YouTube, and let the public watch real news.
1
what'll be equally amazing is if they ( the GOP) go back to being deficit Hawks when and not if the next recession hits. does anyone really think this is below Mitch?
1
In my opinion, the author has missed to say, how he thinks federal spending should be financed.
1
To follow up on my last comment, you often point out that most people don't have time to keep up with news. My career success has mostly been a product of my free time. Most people have family and job obligations that prevent them from catching anything but the slightest impressions of government leaders. It is hard work to learn details. (There was a study a few years ago showing that learning math literally hurts the brain.) How to fix this? People in the know should provide free information to people via YouTube, through free newspaper subscriptions to high schools, through PSAs and through advertising on social media.
1
You can't be serious. Talk about ignoring the impeached elephant in the room. The reason why Trump is in power is not because of billionaires trying to sound serious by promoting a tightening of collective belts. He is in power for the same reason he was elected and impeached; he nefariously solicited the assistance of a foreign power to intervene on his behalf. Austerity has nothing to do with it.
Your analogy of the household vs the economy, and that the economy of the whole is all connected (kumbaya), only makes sense when there is one economy. There clearly isn't one economy. Even the flawed Elon Musk knows this, venturing onto martian soil to exploit an entirely new planet and invent an economy from scratch. Ok Krug? Do you get it yet? It's time to hang up the mantel and go back to your tired old cliches and serious models.
1
Correct, you can’t save yourself rich anymore than you can borrow yourself rich.
You’re going to have to steal.
1
Krugman has zero proof, historically the opposite has happened. In the few instances when the Federal government actually decreased spending, the economy boomed. The last example was the early ‘50’s
Government spending does not create wealth, aka savings. On the other hand, the almost $1 trillion dollar “stimulus” was a failure
Krugman will argue it wasn’t enough, but here is the thing, he can’t tell you what is enough. Federal spending has doubled since GW left office, and he was fighting two wars. By that standard the US GDP growth should be 2-3 times greater, it’s not
1
OMG - nothing’s permanent except when modern monetary policy adds a few (many) trillion to the money supply and we are permanently inflated. Buy stock in a wheelbarrow company.
1
Conservatism 101: Take from the Poor and diminishing Middle Class, and always, constantly, consistently give to the Rich.
Quid Pro Dough.
Seriously.
2
This is a very clever piece. The lesson is that if all of your predictions are wrong, simply shift to a line of argument, the “what if” argument, that can't be proven or disproved. For once, you can't be wrong! Better yet, attach the perfidy of that “what if?” scenario to a shared enemy (in this case that means Republicans) because you know it will play well with your base. Make confirmation bias your friend,
Wow, it seems like Trump is teaching all of us lessons in obfuscation.
So Dr, Krugman, Bravo! Well played sir!
1
@PaulKrugman: After years (decades!) of applying economic and monetary policy to the economy and preaching their correctly predicted outcomes, how have the Very Serious People not taken your advice by now?
1
Never seen an ‘economist’ so glum in our best ever American economy.
1
Paul, regarding “The Legacy of Destructive Austerity”, there is some advantage to ‘Destructive Austerity’ — after all, it provides advantages to the UHNWI, to the < 0.1%ers, and most importantly to this Disguised Global Crony Capitalist Empire, which is only nominally HQed in, as merely ‘poses’ as, our formerly “promising” and sometimes progressive country (PKA) America — so, as Bill Murray would say, “at least we got that going for us”.
1
Republicans are attacked for deficits that are too small. And they are attacked for the recent deficit that was too large. Goldilocks comments. Republicans are the three bears. The porridge is never quite right
1
The poorer people are, the angrier they are, the more reactionary they are, and the more likely to vote GOP.
Not rocket surgery.
1
How does Krugman explain the strong economy starting in Q2 2014 when the Republicans stopped the Obama stimulus in December 2013 and Krugman and the Obama White House predicted “doom and gloom”?
1
There is a real fight about the concept of deficit between the old fashion school Krugman represents as an economic concept and a new school of economists who think that the deficit is not that important because the economy ( literally the law of the exchange) is only a virtual phenomenon or more so a convention.
But the readers here of the NYT are too far from knowing what Krugman refers to in this article .
1
Krugman writes the same column again and again and again. Why doesn't any of it ever take hold? Is it media centrism? Is it Democratic fear of being labeled socialist? Is it just Republicans exploiting voter ignorance?
He sounds like a Cassandra, doomed to repeat something that will never be believed, because those who understand and who have the power, will never have the backbone to implement rational policies.
1
In response to
Bruce Rozenblit
Kansas City, MO4h ago
Times Pick
The left behind voted for Trump in order to be lifted out of their downward spiral. Has this happened? No. Small town and rural America is still suffering. The farmers are enjoying massive soviet style bailouts, but factory workers still have no factories to work in.
Dear Mr. Rozenblit
That the factory workers still have no factories to work in has nothing to do with austerity.
The factories disappeared as the direct consequence of the economic theories that Mr. Krugman dispensed throughout his career: Free Trade is good for all, NAFTA will not change employment in the US, and outsourcing jobs to low wage countries is not only good, but opposition to it is morally outrageous as it lifts people in Mexico and China out of poverty. Google "In Praise of Cheap Labor" and read it
To have manufacturing jobs in the US requires tariffs on products from low wage countries - opposed by Krugman
Or bilateral treaties such as the NEW NAFTA, that specifies that wages and workers rights in Mexico
Read VOX
Trump’s new trade deal is better for workers than NAFTA was
https://www.vox.com/policy-and-politics/2018/10/2/17925424/trump-mexico-trade-deal-nafta-workers-labor
As a labour economist I can assure you that no US economist has done more damage to US workers with now largely proven wrong theories (read the MIT papers by Autor) than Mr. Krugman
1
“In the economy as a whole, my spending is your income and your spending is my income.”
Absolutely beautiful! Basic economics, but so easily understood!
I just wish I had this phrase when I was questioned by my students when I covered the Great Depression and Great Recession in my history classes. I tried the standard Keyesian lines like “Pay someone to dig a hole and the fill it.” But they didn’t quite understand it. Even referencing the standard supply and demand memes didn’t always work.
1
The elite policymakers in the US took a huge wrong turn many decades ago when the regulation of the economy was turned over to the Fed. It was assumed, with no evidence, that manipulating interest rates could stimulate investment and prevent serious recessions, without getting into the messy politics of fiscal policy. Furthermore the "Maestro" himself, Alan Greenspan, the long-time Fed Chairman, was always an advocate of deregulation and actively worked for many of the measures which allowed banks to run wild and produce the housing bubble of the oughts. As the crisis of 2008 developed, the priority of Fed authorities was not just to save the big banks, but to augment their size and power. Of course Obama's main economic advisors did not call for a larger stimulus, because they believed in the dogma which said that the Fed could do the job. In Europe excessive authority was given to the European Central Bank, whose leaders prioritized repayment of the debts to German and other banks and forced austerity on the lagging countries. It is peculiar that so many self-described liberal economists have believed and still believe in the power of monetary policy, which is basically a supply-side remedy. If the money from massive tax cuts for corporations is not constructively invested, why should the money from near-zero interest rates do so?
1
This is a plea for Dr. Krugman to help us understand what’s really going on with employment. It’s certainly the case that unemployment is low and that more Americans than ever are employed but that isn’t the full story. BLS data show that both civilian labor force participation “LFP” and the employment population ratio “EPR” have significantly fallen. That could imply that the economy has generated more jobs since the 2008 crash but far too few to keep up with population growth. But since the US population has grown only about 8% since 2008 (330 million of us now vs 304 million then) that doesn’t seem very plausible. The LFP is now about 63%, it was about 67% in the Clinton and Obama years and EPR is currently about 61% and averaged around 63% in the Clinton and Obama eras. Those are real changes. Surprisingly(to me at least) two factors we often blame for our feeling that the economy is not as good as the numbers - part time and gig work - seem to be less of a factor. Part time workers are about 17% of total employees which is the same or even slightly less than in the Obama and Clinton years and the self-employed have taken a real hit - about 8,700,000 now vs 9,700,000 in Obama’s term and about 9,000,000 during Clinton. What’s really going on?
1
Although I partly agree you seem to have forgotten that Keynes also wrote: when a country is in a boom period there should be a budget surplus and the debt should not exceed 25% of the GDP.
1
@Sten Malmstrom
So, what does the currently high debt to GDP suggest? (Other than someone is filling their pocket and it’s not me?)
1
I wonder how many readers read
"Becoming a Steel Worker liberated her, than her job moved to Mexico"
NY TImes 2017/10/14
Austerity did not destruct jobs. Outsourcing did
And how many readers read VOX, frequently cited by Prof Krugman
"Trump's new trade deal is better for workers than NAFTA "
Vox Nov 30, 2018
The Democrats had 8 years to help workers who lost their jobs in the wake of the old NAFTA , passed over the objections of Trade Unions,
1
“(Nancy Pelosi) appointed a nine-member group in June that spent months meeting with Lighthizer in various locations around the Capitol, exchanging proposals and working through impasse after impasse. Last month, Pelosi took over the talks and with Neal launched intense negotiations with Lighthizer and with AFL-CIO President Richard Trumka, whose support Pelosi was determined to obtain.
AD
House Democrats, who viewed the initial deal as unacceptable, achieved substantial changes. They jettisoned pharmaceutical protections sought by drug companies and added provisions ensuring higher labor standards in Mexico, quicker dispute resolution, higher environmental standards and stronger enforcement of all elements of the deal.”
Washington Post 12/19/19
1
I wonder how many readers paid attention when the GOP shut down the government and threatened to default on our debt when Obama was president to implement their austerity program specifically designed to hamper the country’s recovery because a Democrat, a black one at that, was president at the time? Instead of pedantically cherry picking articles, take a look at th bigger picture and try understanding it.
2
If I remember correctly, just as the Great Depression was beginning to show signs of recovery, FDR and Congress decided to balance the budget. The economy slumped and the Depression dragged on.
3
One can argue the last three presidents have all juiced the economy on arrival as taking office. Yet only Obama did so with good reason, and was hobbled in doing so.
3
What concerns me now is that this is the point in the cycle where we should be reducing our debt. The economy is about as good as it can get, so this is the best time to reduce debt. But instead we rapidly increasing it to near record levels. Conditions are in most ways similar to 1900 and the comparison to that time suggests that over the next decade we should expect the economy to remain relatively strong and the stock market to trade within a relatively flat range. But in 1900 we did not have a huge national debt.
4
"So why did policy and opinion makers go all in for austerity when they should have been fighting unemployment?"
Because they knew exactly what would happen. It wouldn't work and would make Obama look bad. It would cause a surge of populism that would help their far right agenda. The want small town rural America to suffer because they know it ultimately helps them get money and power.
4
There is another aspect to this: military spending. The US has spent trillions of dollars on the military -- the Cold War alone is estimated to have cost about $13 trillion -- and now under Trump the amount goes up, with next fiscal year's military budget approaching $1 trillion. Our 18-year endless war in Afghanistan has cost about $2 trillion, with another trillion projected over the years to care for all the human damage.
It's been shown that the multiplier from military spending is less by a lot than that from civilian spending, so even seen as a form of stimulus, money fed into the war machine is largely money wasted. What could we have done with all those trillions? The mind boggles.
1
The best possible outcome of military spending is more expense to dispose of unused weapons.
1
It's not necessarily about spending, direction counts. Zeitgeist counts.
Doling out big bucks to Wall St. via lower than low interest rates, was not a good idea. Yes it made some rich, but ruined the lives of many others.
Even among those that benefited, was that temporary. Should people continue to jump into the casino with Asteroid Belt valuations, because their is no other place to put savings?
Are inflation rates accurate? Does global outsourcing still take place? We live in a nation controlled by a pantheon of demigods called, CEOs.
Boeing's board finally forced CEO Dennis Mullenberg to step down. The company recently had issues with it's 737 Max. Hundreds died. He rec'd a $32,000,000 million dollar severance package.
5
The former US had progressive taxation that paid for infrastructure, education, research and development, and the welfare of the people. Now we invest in billionaires.
6
Keynesian theory did not get the US out of the Great Depression
World War II did.
First by gearing up for it , building planes and warships (The battleship USS North Carolina was commissioned October 27, 1937)
Then later, by drastic austerity. Gas rationed. Cars unavailable
Recovery came after all global competitors had been reduced to heaps of debris and the US population after 5 years of rationing caught up with consumption
1
Actually, the Depression was well on the way to being over by 1936 when Roosevelt decided that it was time to do something about the deficit his programs ran up. Predictably, the economy began to falter again. World War II got us out of the double dip downturn of the 1930s because of the massive amount of government spending required to transform a peacetime economy into the “Arsenal of Democracy.” And while it’s probably true that the U.S. economy boomed after the war, in part, because many of our peer economies had been destroyed, you can’t discount the major investment in people that was the G.I. Bill. That spending program made it possible for young men to start families, get the educations that powered our economic dominance through the 1950s through the 1970s, an buy homes.
Bottom line, government spending helps economies grow and thrive. Krugman was right. The economic stimulus the Obama administration offered in the wake of the Great Recession was far too small.
1
Government spending for WWII is literally a textbook example of Keynesian economics at work.
Massive debt-funded government spending for the war replaced the private sector demand that was lost in the Great Depression, for steel, aluminum, textiles, vehicles, food, etc. The military directly employed and paid millions of people, soaking up the unemployed and pulling new workers - including millions of women - into the private labor market. The conversion of private industry to arms production drove civilian employment.
After the war, a variety of policies today’s Republicans would brand as “socialism” eased the transition back to a civilian economy, unlike the US experience in the aftermath of WWI. The GI Bill stimulated demand for housing and education, while delaying re-entry of GIs back into the workforce. The Marshall Plan supported continued production at wartime levels through deficit-financed exports of food and material. And funding for the military, and defense production, remained at high levels relative to pre-war peacetime norms (and have remained there to this day).
1
I see that the field of economics has many variables and, as such, it is not easy to accurately predict the outcome of much of economic policy. However, what I have noticed is that many politicians use this complex subject, economics, as an excuse for selfish behavior. In particular, we had (and still have) Reagan-omics, and we had obstruction for political purposes during the Obama years, by the Republicans. It seems that Republicans can always find an excuse in economic theory to increase the wealth of the wealthy, at the expense of the rest of us.
6
I can understand those on the right who would dismantle not only the Great Society but also the New Deal using any handy specious argument to get their way on social spending. You miss the point of you accuse them of hypocrisy because their arguments for austerity always vanish the moment they're back in power.
What I can't understand is the willfully naive "non-partisan" voter who seemingly cannot weigh the dichotomy between Republican calls for austerity and their eagerness to bolster military spending so that our military can invade other countries. In fact, history tells us that even when our Congress refuses to rubber stamp GOP military demands, those rascals will find a way. (See Boland Amendment and ensuing developments.)
For those who are just waking up, here is a 2018 Slate critique of Paul Ryan's falsehoods in support of shredding the safety net:
"His speech to the 2012 Republican National Convention was littered with blatant lies—for instance, that Obamacare raised taxes on “nearly a million small businesses” (it did not), that the stimulus had been the “largest one-time expenditure ever by our federal government” (it wasn’t), and that Obama had “raided” Medicare to fund Obamacare .... But even among incensed voices in the blogosphere, there were few willing to denounce him as a charlatan as forcefully as Trump is denounced today."
Like Captain Renault, so many Americans are now "shocked, shocked" by GOP lies and social savagery. Nice that you finally woke up.
6
Professor Krugman laments the so-called austerity of 2010-2015, but this was a period of explosive federal spending growth. The US added almost as much debt between 2009-2016 as had been accumulated since the nation’s founding. The GOP’s ‘sequester’ marginally trimmed federal spending growth rates - but spending still grew. There was no government austerity. Individuals practiced austerity though which is the responsible thing to do when one is fearful about their job and economic future.
Consistently higher and ever-increasing federal spending are a key reason GDP growth remains tepid - along with much higher financial sector regulation. The nonstop expansion of federal programs since the launch of the disastrous Great Society is also a reason. It should worry us all that economists like Prof Krugman & all Democrat candidates favor a much larger expansion of these already mostly-failed policies.
The professor is only correct in pointing out the GOP’s deficit & debt hypocrisy, which has long been one of my complaints. Otherwise, the premise of this column is irresponsibly wrong.
1
Great insightful opinion. Two points:
A stronger safety net would increase economic growth because entrepreneurs feel they can take the risks necessary to start a new business. Starting a business is risky, not only for the entrepreneur but his or her family if the business requires that their savings for college or emergencies has to be spent on the business. There is a series of studies by Gareth Olds at Harvard documenting the correlation between states that offered greater safety net support and business formation.
Second, many of the most vocal austerity advocates are driven by a pathological hatred of government. Whether it is the supporters of Cliven Bundy or of Grover Norquist,they believe government is out to rob them.
No amount of rationale research or argument is going to change that paranoid thinking. That's why attempts to compromise and reach across the aisle are going to be futile. The austerity advocates live in a different reality.
There is only a political solution which is to expose their irrational arguments as Krugman has done and then organize the vote.
3
@mg
"they believe government is out to rob them": these are people who want good roads, well-lit streets, safe neighborhoods, but refuse to pay for all that.
2
Dr. K, it’s even simpler than that. You need to write it so even the “very fine people” can understand. The game is not hard to figure out. Give tax cuts to the rich, make the middle class pay, and cut programs that support people who aren’t rich. When people complain that programs are being cut, the austerity hawks will say, “We have to be fiscally responsible. Spending is too high.” See? We pay AND we lose.
7
Measuring the effects of policy on the economy is a black box. We usually use the GDP, a lazy metric, that doesn't measure disparity or distortions. The "supply side" economics is a sham that couldn't fix the Great Recession. Economic need and demand drives the economy until wealth makes baubles an economic driver. Air is free, iphones cost an arm. What is the government's role? make policy that does the least harm and the most benefit as possible. In an interview, Daniel Kannehman, a fellow Nobelist, once said that the government does not have the responsibility to make all citizens happy, but does have the responsibility to keep citizens from Misery. That is the other side of economic theory.
2
So Paul, you''re opposed to austerity, but you also oppose Modern Monetary Theory, aka the magic money tree, aka printing money. I assume you're a Keynesian. But while Keynesians believe in deficit spending to end a recession, they also believe the money should be paid back when times are good. In the real world, the money NEVER gets paid back. So this leaves the magic money tree as the only solution. Can you post a link Paul, where you answer these apparent contradictions?
4
I am waiting for Prof. K to explain in a way that dispels the Republican intuitive household argument about budget deficits, how Keynesian deficit spending is necessary for a sustainable growing economy. Until Prof. K. acts more responsibly by rationally explaining his "deficit spending," conclusions, we will suffer more of the Republican false and self serving budge deficit frauds.
1
"traditional elites": is there a generally accepted definition of what an "elite" is? It used to be the better educated, e.g. the village priest, schoolteacher and doctor, irrespective of what they earned. What is the current definition? Do you have to be a millionaire to be part of the "elite", or does it require a billion or two?
1
Keynesian deficit spending did not get the US out of depression
World War II did. Starting in 1937 with the building of battleships and airplanes.
Followed later by four years of crushing austerity for the US population, with gas rationed
And then recovery, after all commercial global competitors were destroyed
3
I wonder if another motivation for Chicago School austerity ideology is the fire sale opportunities that it creates. As Governments are forced by IMF and others to cut budgets and services, as the economies deflate opportunities are created to buy assets at greatly reduced prices - and who has the money to do that? Probably the oligarchs who created the austerity policies in the first place.
2
Keynesian deficit spending did not get the US out of depression
World War II did. Starting in 1937 with the building of battleships and airplanes.
Followed later by four years of crushing austerity for the US population, with gas rationed
And then recovery, after all commercial global competitors were destroyed
2
The problem is while liberal economists constantly remind us that the USG budget cannot be treated like a household budget. Their metrics are still income(tax revenue), spending, and the difference between them - debt (deficits). It sounds like a distinction without a difference to most people and little the economists say disabuses the public of that notion. This certainly explains the appeal of MMT which provides sound reasoning for not worrying about the deficit scorecard.
1
The wealthy always get a pass for breaking things. There is no accountability. It makes a mockery of the justice system and the political system. It has a lot to do with the fact that few people have moved their positions despite impeachment. When Pelosi lays out the canard that no one is above the law, folks look around and roll their eyes.
6
Austerity in the US and Europe has a linear creation to the populist right and the threats to democracies.
Austerity creates the impression, or indeed actualite, that resoucres jobs, goods, social and other resouces, are becoming scarcer, and therefore the fear of 'the other' grows and can be promoted, i.e. refugees, Hispanics, Muslims. Therefore taking control by threatening to build a wall between the US and Mexico, or the UK leaving the EU play and pander to the fears of a loss of control when resources are percieved [or are because of austerity measures] to be limited.
The elites did not provide enough or sufficent answers with traction for people in Pennsylvania or in the North or Midlands of England.
Resultantly, 'John Bull' white English nationalism in England is out of his cage, as is nativist white nationalism in the US. The challenge is how to deal with before its destructive potential is more calamitous?
6
I believe there's also a racial component of austerity, at least in the US. Cutting government programs and spending would mean cutting off "those people" from the tax payer dole. No matter that those programs and delayed infrastructure repairs affected everyone. The perception, especially given that a black man was suddenly president, was that something had to be done to keep minorities in check and confirm the white supremacy of the pre-crash socio-economic order. And while yes, some may have voted for Trump because they felt they had nothing left to lose economically, the majority of his votes were racially motivated. He was going to keep "those people" in their place while protecting white privilege. That was basically his announcement speech from Trump tower.
4
Mr Krugman is simply trying to piece together some loose facts in preparation for his next article espousing MMT. But Mr Krugman, if Lord Keynes was correct, when do we start the tightening cycle? The Liberal answer is never. Then we will be exactly like Greece. America, the EU, and China are well on the way, but now there is no productive society to pick up this excess debt. Mr Krugman’s proposal sounds enticing, but are very dangerous ideas.
3
To see where a deficit financed recovery winds up look at Argentina
Disaster.
To see where an austerity driven recovery winds up look to Germany
Lower unemployment than in the US. Lots of manufacturing jobs
2
Or you could look at America in the 1940’s. Deficit spending won the war and grew the economy.
2
Ok, but you didn't address the other side of that same coin. I agree wholeheartedly with you arguments, but are there upper regions of the debt issue. Does it matter that Trump keeps piling up trillions to the (national) debt?
1
I don't really see this connection. Trump voters' dissatisfaction is more cultural than economic--more a perceived loss of status, especially male and not exclusively white. Trump's election was due to a weak insider-legacy candidate (sponsored by the same people who gave us the Gore-Lieberman ticket, which begat the Cheney=Rumsfeld era) that played to these anxieties, combined with a shift in communication that elevated a tabloid-style candidate.
2
The Republican Party and the entire conservative right do not have a coherent economic policy for the nation. They do have a policy for themselves, which by and large means benefitting the ultra-wealthy with generous tax breaks. Supposedly, this policy then spurs investment in plant, equipment, infrastructure and so forth.
Hasn't happened and won't happen because the Republicans and the conservative right think only in terms of how economic policy makes their lives better. They fundamentally have no interest in, or regard for, the nation; it is their investment portfolios and vacation homes and a fleet of automobiles in the garage that motivate their economic outlook.
Reduced to a bumper sticker, Republican economic policy could easily read as "I've Got Mine, You Don't."
16
I have long argued that there is more than one type of deficit that economies need to concern themselves with, but that we perversely focus only on the immediate fiscal deficit - to the exclusion of infrastructural deficits, educational deficits, environmental deficits and others.
These other deficits impose long term costs on an economy - sooner or later potholes must be fixed, bridges replaced, tunnels renewed, while a failure to add new and more modern infrastructure slowly chokes an economy’s growth. Educational deficits exert a cost in lowering future productivity- and educational deficits are typically multigenerational - children from poorly educated home typical underperform their latent ability. Environmental deficits beget disease and more expensive cleanup.
When looking at the economic “balance sheet” deficit scolds rarely put a value on these non-fiscal deficits. But they are a real cost, paid for in slower growth, a poorer public space and inevitably costs and losses.
17
Let’s not ignore the not-insignificant role that good old-fashioned racism played in the GOP’s obsession with deficits from the moment it took control of Congress in 2010 until the moment Trump took control of the GOP. There was simply no way the GOP was going to let a black man’s stewardship of the economy succeed. Republicans are much more content to let a white man drive the economy into a ditch.
And, frustratingly, the media’s constant cooing over the low unemployment rate overlooks the fact that the “headline” unemployment rate counts only those actively looking for work. It’s one of six ways that the Bureau of Labor Statistics looks at unemployment. The large cohort that has given up on securing full-time employment isn’t part of the most widely reported rate. The U-6 rate from the Bureau of Labor Statistics, which includes the unemployed, plus those only marginally attached to the labor force and those employed part-time for economic reasons, showed the unemployment rate was 7.3 percent in June, or roughly double the BLS’s most widely reported rate.
6
This is all very convincing theorizing, but is it proof? There probably were many variables in play. Is there a good example of a country that avoided austerity and quickly rebounded from the crisis without long lasting negative effects? I’d really like to know.
Not to quibble, but the left-behind voters supporting Populism these days have been struggling since long before the 2010 Austerity measures.
Most rural high-school graduates (ie Trump voters) have faced declining living standards since the 1970's. They've been excluded from the party for a long time and they're not happy about it.
To understand the rise of rural Populism, you have to consider deeper structural issues like waning productivity-growth, knowledge-economy urbanization, and Globalization's winners and losers. All of these likely played important roles - maybe more important than recent fiscal tightening in a growing economy.
4
@Diogenes Good to know that exporting manufacturing jobs via bogus trade deals had nothing to do with it.
1
I just checked the unemployment rates for France, Italy, Spain: all still far from pre-crisis levels.
1
It wasn't just the tariff wars that made the Great Depression worse. Herbert Hoover believed in balancing the budget and so did the Federal Reserve Board after 1929.
The Federal Reserve actually raised the discount rate after the crash of 1929. Was this to make it more difficult for bankers to make "risky loans" or was it to help the big banks gobble up all those little country banks that were so frightened by the Federal Reserve Act of 1913.
Everything that most frightened the country bankers who testified in the Senate hearings of 1913 actully came true after 1929, for there are not very many country banks left today.
Roosevelt also said he would balance the budget when he ran for president. But he did not keep this campaign promise and the results were exceptionally good when he increased the size of the budget by 1000 percent between 1941 and 1945. Because he also raised taxes to levels as high as 94%, balanced budgets were actually achieved in the late 1940s, when Truman could cut spending while leaving the high taxes in place.
These Roosevelt-Truman policies worked very well. We should try this again.
2
In 2009 the US could have doubled the minimum wage. They could have increased infrastructure spending with a gov't spending led stimulus package. They could have stepped in the foreclosure crisis. They could have held banks up to the moral hazard they faced but were protected against because they were too big to fail. Erskine-Simpson is a perfect reflection of the divide that faced the Democrats. In Europe the Germans and the Brussels banks who were their allies crippled social spending and harmed Southern Europe with draconian cuts. Germany now faces a new world where their auto industry is under assault. What goes around comes around. The Europeans told the US, even with the USs paltry efforts to stimulate its economy, that their gov't spending was already great. This is the legacy of Angela Merkel. Obama had crucial Democratic Senators that hung up stimulus with tax cuts. The ACA was much less ambitious after the death of Ted Kennedy.
1
Thanks for the article. It reminds me of Germany’s Agenda 2010 reforms introduced in 2003/05 and the on-going “black zero“ budget policies of the Merkel government. Great examples of 'afflicting the afflicted while comforting the comfortable' and big reasons, in my view, for the resurgence of right-wing politics in Germany and even Europe. But arguing the points can be a challenge as these policies are also widely perceived to be the reason behind Germany's robust economic position following the 2008/10 financial crisis.
1
Sorry, Paul. But you know better. Blaming the current political crisis on any one variable is far too simplistic. Many factors are at play. But, perhaps the most powerful is a media that couches almost every news item it chooses to highlight in the most extreme terms (presumably to grab and hold onto our limited attention).
http://click.alerts.jamanetwork.com/click/axac-1n3wlp-lqps9x-1b745mz9/
Automotive plant closures may not exactly be the debt crisis but they seem like a good substitute for it. Then look at eFigures 1 and 2 here:https://cdn.jamanetwork.com/ama/content_public/journal/jama/938283/jsc190006supp1_prod.pdf?Expires=2147483647&Signature=Jf3AfNo~8yhdMy2mBSCzAe5qqt8tpe0tfMxhf~jAuJpM5fKlieW3BNnQp-GHMpA8aRPAttLr38l5FShvdvjj5MAC42GtZUGTpH9wSE372PRvL7UXecBPEh21owmfe3GkFCBblkFaYYRSghRlMdll-96UUKW3PuELFfecxTidHOuOiLhta2ns3hiQfD5oFqPy6a6gF00Wk61qCzsP0E3JsDEQ1m5bdi6GpiBL5uaRJm892dq-OpqRMnr9exwHysnUxujENdtrkN4PkOghnwWjBhKmgRrT3dd-W-MQFryjXx-uMbRlje8WsSMS~SDJY8Dp-gqDFbIDCZM6uICDcabuFg__&Key-Pair-Id=APKAIE5G5CRDK6RD3PGA
It looks like the inflection point for mortality occurred in synchrony with the economic crisis. Not a surprise. But it hasn't turned around as unemployment has dropped (but inequality has worsened) .
1
On the upside: The economic, political and emotional scarring austerity caused produced a generation that skews incredibly hard left. If we survive the current democratic crisis, austerity will have obliterated 40 years of economic and political thinking. Austerity inadvertently killed Reaganomics. No one under 35 subscribes to neo politics beginning from 1980 to the most recent tax cuts. They think the ideas are absurd because, quite frankly, they are.
We have to survive the crisis first though. Two actually. First, we need to prevent minority interests from a bygone era from entrenching power and effectively ending democracy. We need to destroy the pre-Recession legacy while also destroying the politics it produced. Secondly, we need to do so quickly. The clock is ticking on climate change. If the inflection point doesn't occur soon, we're relegating the future to a vast array of misery and hardship.
No easy task. However, assuming we're successful, you will find yourself in a new found era of robust social programs, workers rights, and responsible spending. In other words, progressive taxation. Great Recessions have that effect on people. Meanwhile, the youthful emotions of the Great Awokening will eventually settle down into a rational egalitarianism of some variety. Society in general is trending towards equity.
All this because some 2010 politicians thought it wise to weaponize Keynesian economics for political gain. Tisk, tisk.
3
Donald has a 4-year in of all things - "Economics." Has anyone heard Donald speak to financial matters with the proper terminology?
So, yet again here we are as a nation. An election stolen and another republican dullard placed at the titular head of our supposed Democracy.
By the way, why is the Fed propping up the Repo market with tens of billions each month? If the economy is doing so well, why is this stimulus being applied as was for the George W. Bush financial debacle.
4
Dr. Krugman, sounds to me that a considerable amount of federal debt was wasted on corporate subsidies for which there has been no return. What do these subsidies amount to today, 1, 2, 3, maybe $4 trillion? Will we, should we as citizens raise corporate tax revenue to reclaim what seems to me to be losses to our economy?
1
Thank you. I have been saying for years that a country/government is not the same as a person or household. How money is handled is, and must be, different.
4
An additional permanent injury of austerity is that those who entered (or tried to enter) the work force between 2009 and 2016 have had their lifetime earnings reduced. They either had an extended period of unemployment or took positions below the level of their qualifications. Those who are now entering the work force will advance beyond them.
The resentment of this group is only going to get far, far worse.
2
I am old enough that I probably have a direct stake in all of this for only another decade. Still, it would be nice to exit this world feeling that things are on the mend. My biggest concerns now on the economic front are governmental corruption and austerity. Both are self-reinforcing, in a destructive feedback loop that the Germans call a Teufelskreis or devil's spiral.
The corruption of governmental structures and the weakening of the Constitution and the law, being carried on so enthusiastically right now by the GOP, will take decades to reverse. However, some glacially slow progress is seen in the former Soviet satellite states, so there is hope at least.
However, I don't know what will happen with the lingering effects of austerity. Will prosperity make people forget quickly, or will the destructive spiral continue? Unfortunately, the UK has likely committed itself to decades of future austerity. It is unlikely to prosper outside of the EU. To rejoin the EU would require a large decrease in what by then would be a large debt load.
12
The housing crisis and the massive foreclosures that followed were a tremendous hit on the US working class. Prof. Tooze pointed out that in 2008, the US should have forced the banks to extend mortgages for an additional 5 years to prevent disclosures. This is not mentioned in the article, but I am interested in Prof. Krugman's opinion of this suggestion, which (I must note) was made well after the event.
3
It has been exactly backwards for decades. Deficits should go down when the economy roars ( think Clinton) and up ( used for broad infrastructure jobs) when the economy is in the toilet. Spending is now just a partisan weapon. But, it is not only deficits. It is wrongheaded use of interest rates and banking policy aimed at propping up asset prices ( mostly housing in wast and West Coasts). Zero interest rates really don't work to provide the targeted parts of an economy in trouble. It is a blunt instrument that favors the NY corridor and California. We don't need the excesses of the money center banks.
Savers ( retirees especially) deserve income from a lifetime of hard work. Young families need to save for college in a local S and L and get 4% guaranteed.
This seems eerily like the 1920's ( here an in Europe) again.
The four most dangerous words in the English language:
"It's different this time."
4
austerity is the results of governments intake and give out. your article, and many many other views in the last several years, have only focused on the “net” or aggregate.
when we look at the raise of populism and the loss of traction of a traditional liberal democracy is because the austerity has been made to pay by the middle and lower income tax. in 2008 the Fed saved Goldman Sachs (counterpart to enormous amount of AIG trades) and UBS, and then we had to cut benefits in a number of field.
had some of the banks, investment banks etc being nationalised (not let going under, which would have been devastating to the economy, but their ownership - once they were de facto insolvent - shifted, maybe only 80-90%, to the provider of support - the Fed, the Treasury) there would have been much less resentment with a shared austerity. despite Obama, carried interest in private equity/hedge funds keeps being treated as capital gain.
austerity has been shoulder mostly from one set of the population (real estate in wealthy West London borough recover their value in 2/3 years, in East London took more than the double); it is the continuous growth of inequality that drives the “gilets jeunes” in France, the Brexiters in the UK and the 5 Stelle in italy. if austerity had been paid by increasing tax rate on capital gains (which, with assets inflation, is the main source of the increase in inequality) rather then cuts in health care, the political sentiment would e very different.
6
So the tax cut was good for America? Small example of distribution of wealth by the government. Trickle up theory. When spending by the government is targeted to the rich, it helps the rich, not the nation. MIC is large and getting larger. How many billion dollar aircraft carriers do we need? One missile can knock them out. Reminds me of battle ships. Long gone.
3
@Robert Black
It would seem that an effective software hack could render a billion dollar aircraft carrier mostly useless. It's time to start spending smart money, and less of it, on the military.
1
I believe the goal of conservative "balanced budget" and "pay as you go" policies exist for the end goal of privatizing as much of what the government does as possible. By preaching that debt is bad while simultaneuosly racking up debt, increasing the amount of money to service that debt, and then cutting taxes on the wealthy, conservatives create the image that we have no money for social programs to justify cuts to them, and promote private participation in areas like prisons, military service, and infrastructure projects, turning these into for profit sectors where the wealthy can make money off of US citizens rather than have these areas financed through taxes or debt financing.
11
Dr Krugman I would like to see more written and analyzed about unrestrained Capitalism and its cause, unfettered Greed. Those who are in the grips of the latter cause the former.
American capitalism with Greed as its driving force was always meant to be balanced by the virtues of generosity to those less fortunate, personal restraint, charitable kindness, and loving thy neighbor as thyself. The Republicans and hyper capitalists have gone to the opposite of these values, they are obsessed with having moremoremore, and possessed by Greed. They do not care about others, have applied greediness (a selfish trait) to everything. Somehow this has become OK, a very negative, cynical, amoral code of ethics that permeates our capitalist society.
Austerity and its negative impact in this light makes sense, we are on a path that cannot be fixed by mere economic calculus; our economic condition will not improve until we also become better human beings.
3
Dr K is actually being very modest in his column. As I watched austerity in Europe progress and authoritarians rise I remembered Dr K predicting it back in 2008 in his columns. As Brexit became a problem again it’s source was the austerity imposed by the conservatives in power on the people outside of London. As America was hit by budget constraints here at home resentment began to rise. The result being the surprise of both Trump and Bernie tapping that feeling that the system only helped the wealthy or elites. Dr K warned about this 10 years prior. As well as the tech and real estate bubbles. From where I stand using data and historical models seems to be very helpful and not partisan. Thank you Dr K!
5
I am enjoying a better standard of living than my parents because I have higher education, am a woman who kept her career and I live in a major east coast metropolitan metro area. The education of women is key to a growing economy. Also if you stayed behind in a blue collar job or area you are sunk. My parents were east coast people and white collar workers and they enjoyed a good standard of living until the mid 70s when a bad recession killed the NY economy. Since then white collar economy has outpaced the blue collar economy. Especially on the coasts.
1
It seems to me that the major difference between Democrats and Republicans on the economy is a matter of mathematics. Democrats know that 2+2=4. Republicans believe it is 3 or 5; depending on which party is in power.
8
Agree totally with Krugman about deficits in a crisis. Wondering about increasing deficits in a strong economy where unemployment is at a historic low? Does this not tie the hands of government when the next crisis comes? Or does it matter not?
2
@HPower Inflation is the constraint. The government’s hands are never tied with respect to spending if inflation is not a concern.
1
One of the sequelae of austerity was Brexit. The European Central Bank was a major advocate of austerity during the Great Recession, and is perceived to become one again during a future economic downturn.
During a recession, if it is difficult to convince individuals that restricting their spending does not invigorate the overall economy, it is equally difficult to convince voters that withholding EU financing for a necessary local project is not an act of reasonable belt-tightening, but one of political favoritism.
In Trumpist era, stimulative relief is doled out as a political sedative to preferred groups, while the government denies that the phenomenon is the product of anything but a joyous Wall Street. Even Democrats remain largely blind, deaf, and dumb in response to proposals that would stimulate individuals' spending by relieving debt produced by the economic dislocations.
2
Paul,
You say that there were great efforts to cut deficit spending in 2010.
However, today, this is easy to check to see if it is true.
https://www.usgovernmentspending.com/federal_deficit_chart.html
As you can see, from 2007 to 2010, the Federal deficit went from slightly less than $200 Billion, not small by any means, to a massive $1.3 Trillion.
So, I am not sure where your perception that the US was trying to cut deficit spending emanates from? Not from the data.
Later, from 2014 to 2016 the deficit did begin to be reduced.
But, not 2010.
2
That was the small stimulus that kept the economy going. By the time Obama left office that deficit was down to 400 billion.
And the howls for austerity by Republicans was deafening.
3
I will never forget the quote attributed to Donald J. Trump talking to his rich friends when he launched his 2017 tax cut, "I just made us a lot richer". The problem with so many on the right is that they preach the same dogma going back to Ronald Reagan. The bigger problem is that this tired philosophy has never worked and will never work. While they always restrain spending during a Democratic administration spending inevitably goes through the roof when they have power. The only people that ever benefit from Republican administrations are those that don't need any more money.
18
@Sean You are wrong and naive. As Trump said : it works.
And people of the masses have to swallow and work because they have no choice.
They are governed by the mass of 50 % of US citizens who don't vote because they are ignorant . I mean "ignorant " of the conditions of their existence.
1
Unfortunately, policymakers on both sides of the Atlantic spent the first half of the 2010s doing exactly what both theory and history told them not to do.
let's remember that this was not rooted in policy desire, but solely a political act to harm the sitting President.
5
How many of our reps in government have any training in economics? Isn't this strange given their job is intimately involved in just that discipline? It might help for them to have to undergo training if they are elected! But who would train them? Would it be a PK or would it be an economist dedicated to controlling the money supply? Just pointing out that the economics profession isn't exactly of one voice when emergency measures are needed!
2
So the answer is to just leave the Republicans in power and we will never hear about austerity or balancing the budget.
1
Paul,
As a baby boomer, I lived through the stagflation era of the 70s and early eighties. This period, I believe, has engendered fear of inflation in my generation and has been a contributing factor in the GOP's (or Angela Merkel's, although in Merkel's case the 1930s hyperinflation was probably a greater influence) ability to persuade a large segment of the population to support the austerity measures that you describe.
I think it would be helpful if you would share your thoughts on what factors triggered this stagflation and why we are not facing similar risks in the current economic environment. For example, at the time, many argued that deficit spending to fund the Viet Nam war was the likely cause. And yet, current military spending has gone through the roof? Others have cited the rise in oil prices, which seems to be a better explanation. If it was oil or other factors, what economic Indicators should we rely on to properly assess inflationary risk?
1
Let's not blame "both sides" on this issue. Going back to Reagan, the GOP absolutely led the charge to weaponize deficits (and demonize social support spending) as a way to hold the line on lower taxes for their rich donor base. Remember Grover Norquist? We are now into a second generation of GOP loyalists who hope to shrink the federal government enough to "drown it in a bath tub." The new twist in their deceit is the idealogical consistency it shares with now recognized authoritarian techniques for deliberately stoking populist fears and discrediting of established legitimate policy authority. Today's key strategic question: Was the GOP duped by propaganda, or have they knowingly embraced Putin's playbook of political tactics to hang onto power?
5
I don't believe Paul Krugman has gone far enough with this article.
Republicans knew exactly what they were doing when they forced budget cuts on Obama with sequestration; their plan all along was to weaken him (and democrats) politically by stifling economic growth.
19
And we know for sure that when Democrats retake the WH in the next election, Republicans will immediately start screaming about debt and deficits once again....and that Democrats will abandon plans to make life better for the common citizen, and work again on deficit reduction.
8
Not all debt is equal. A million dollars in social programs spending other people’s money is not the same as a million in tax cuts that simply allows people to keep their own money.
1
Sadly, I think this is all correct. And sadly, knowledgeable people (like the good doctor here) warned about the economic effects of austerity. I suggest that some progressive billionaire (there are a few) endow The Cassandra Prize, for those whose timely and accurate warnings went unheeded.
11
The G.O.P. imposed austerity during the Obama administration not because they believed in it but because
they knew it was a powerful political tool. They did not care that they were adversely effecting the lives of
millions of Americans as long as they got back to power.
35
Thank you Reinhart and Rogoff for your valuable and deadly contribution. I remember the discourse vividly and how the mantra of fiscal consolidation overtook and took precedence over tackling unemployment.
There is a clear line of sight between the financial crisis, Tory cuts in public spending to shrink the size of the state and the blame game against immigrants and the EU in poorer parts of the UK that voted leave and for the conservatives. The only thing worse has been the abject failure of the left to tell this story coherently to show up the level of incompetence of those in power and instead turning itself into a glorified protest movement that wants to relive the 70s and utterly incapable of leading...
3
YOUR Left, maybe. But that’s on YOU, Corbyn.
1
Does this mean that Krugman is about to become honest? Obama was President in these years. Krugman quietly criticized Obama's policy while saying Obama was great. Then Trump adopted Krugman's financial stimulus, and Krugman was hysterical in supporting Hillary's Goldwater austerity. The Trump-Krugman economic policy had results Krugman predicted and will result in a landslide in November. I assume Krugman will be for Biden's "centrism" (austerity)
3
Among the things Krugman did not discuss, and perhaps should have: the insistence of the Right on pop-psychologizing facts and approaches to facts, as witnessed by the continuing insistence upon describing assessments of the economic and social consequences of faux austerity as something only girly men and mannish women care about.
This is, of course, a variant on what Trump learned from Roy Cohn: whatever you’re doing, accuse your opposition of doing. Especially when you’re busted.
And do this very, very loudly. Again and again.
1
To me spending during a downturn softens the blow. But that's where I part company with Professor Krugman.
Treating governmental spending like that of a household is useful at times. Now that, at least in theory and for the wealthy in particular, times look better, we are spending like drunken sailors. Interest rates should have crept up more, not fallen but that's not the Trump way.
There will be no simple way to respond to the next crisis, beyond printing money and that fuels inflation.
1
The Obama era austerity mania DID NOT "fatally damage elite credibility." If it had, we wouldn't be living through 4 years of Trump with a serious prospect of 4 more in the offing, depending on when the current bubble bursts. Damage to elite credibility can be bought off by hundreds of millions in campaign ads.
2
Execpt Trump RAN on screaming at elite credibility. How it’s possible to miss that, I do not know.
1
Austerity certainly played a big part in the lack of uplifting millions of workers laid off during the peak of the Great Recession. It set many families back 5 to 10 years. I would argue that it was not just austerity that undermined us. It was, at least in the US, decades of undermining, and understaffing government regulators, as well as the DoJ settling for money, rather than jail time. Previously well diversified collateralized debt obligations became mortgage only backed securities by 2005. They were AAA rated by under manned and ill regulated private rating agencies: Moody's, and trustees, like BoA, who gladly sold off this 'solid gold' paper to an interest starved public. To put some perspective on this well known, but forgotten timeline, not till 2017 did BoA pay $17B in penalties. Yet homeowners lost $3.3T in just 2008. Moody's only paid $864M in fines. Combined those penalties are just 2% of just the decline of '08 housing prices, to say nothing of the jobs and pensions lost. And who went to jail for this? 1 person. Kareem Serageldin, whom you probably never heard of. 839 people went to jail for the Keating lead Savings and Loan crisis of the 80's. Bad policy at the DoJ as set by Barr, in his first term, Ashcroft and Gonzales, all Republican appointees let fraudsters pay up instead of orange suiting up. Is it any wonder people don't trust the system? However, hiring the likes of DJT to 'fix' things is going from the frying pan into the fire.
17
A good part of the damage of austerity is overlooked by Krugman. It is what I most remembered. The recession had major reverberations in Arizona. Teachers, social workers and countless others were laid off.
Virtually every state has a balanced budget amendment which mandates austerity. States spend more than two trillion dollars a year and are required to balance the checkbook. The best way to institutionalize stimulus spending is to get rid of mandatory state austerity
5
For sixty years, the West helped destroy the developing world by imposing on it - through the World Bank and similar organs - mindless austerity. Not content with this, governing elites turned this weapon on their own countries - with predictable results as noted by Mr. Krugman.
The only major countries which have prospered in this century are those which thumb their noses at austerity - the U.S. China, India. The odious Boris Johnson will undoubtedly have a good run, notwithstanding the real costs of Brexit, because he will be out from under the EU debt limits. He is already planning a spending splurge, hoping to retain control over the Labor strongholds devastated by years of Tory fiscal strangulation. In this country, Trump is more than happy to spend hundreds of billions rescuing coal miners pension plans and paying off farmers damaged by his trade policies. The main criteria for largesse seems to be white skin and Republican leanings.
16
Beyind noting that that dratted World Bank also contributed to decreasing poverty and infant mortality rates, Trump HATES such organizations and is doing nothing to straoghten out miners’ pension plans.
Such things come in the future, and he couldn’t care less. No grifter does.
1
I’d just note that another price of austerity is a still-collapsing infrastructure; we didn’t invest as others have, and we’ll pay.
Don’t even get me started on the ways we have sluffed off the full costs of our current “prosperity,” onto the environment, but basically, as Trump’s done his whole life, we’ve just gone back to the old man for another tranche of cash that we think we’ll never have to oay back.
15
1. This is an an unfunded attack on the Obama administration, in charge 2010 to 2015,
2. Austerity is the policy to cut down on debt creation, It can be done well and it can be done badly. In 2010, Paul Krugman traveled to Germany and warned that it was switching to austerity much too early. A plot of the GDP per capita from 2010 to 2016 shows that the German economy recovered FASTER than the US, that German unemployment is LOWER , and that the German budget balance is POSITIVE. Every on of which is l opposite of the US that continued to proceeded to create debt throughout the 2010 - 2015 period
3. What austerity ? Austerity is a policy to create less debt than the rate of inflation . Below are the data for the US
Fiscal Year Deficit (in billions) Debt Deficit/GDP
2010 $1,294 $1,905 8.6%
2011 $1,300 $1,229 8.3%
2012 $1,087 $1,276 6.7%
2013 $679 $672 4.0%
2014 $485 $1,086 2.7%
2015 $438 $327 2.4%
2016 $585 $1,423 3.1
2017 $665 $672 3.4%
2018 $779 $1,217 4.0%
2019 $1,092 $1,314 5.0%
3.The interest payment on the US debt for the federal budget for fiscal year 2020 is $479 billion. Thee interest on the 10 yr T bill is plus 1.85% The interest on the German 10 yr Bund is minus 0.5% . Competent fiscal policy has its rewards
8
1. Key idea of deficit spending is to be a-cyclical. That is the hard part of cutting spending in times of growth, which governments have been notoriously bad at.
2. Overspending is a bad idea as it limits your options the more of your regular budget is ‘eaten’ by interest payments.
3. We had a long history of adding to national debt - and at some time you need to put your foot down and change course.
4. It is a hard problem to cut spending and there are many worthy causes - but in the end you need to think of the future and reduce debt.
1
“Competent,” and “austere,” are not synonyms, any more than, “budget surplus,” and “solid footing for the future,” are.
1
The other problem with the austerity demands from 2007 to 2017 is that the austerity was so selective in which groups it targeted. Critics of government spending were quick to go after social security, medicare, medicaid, and other social programs. Federal college loans became a profit center for the government. Military spending did not just go unchallenged, it was dramatically increased.
Meanwhile, on the business side, unions continued to be blamed and vastly undercut in terms of salaries, as workers salaries generally were squeezed downward toward the world level.However, executive compensation soared. Young Internet billionaires got most of the attention, but deep old wealth was being hidden, tax sheltered, and wherever possible moved off shore to tax havens. It has not generally come back despite the Trump tax cuts.
Thus does an economy boom for the rich and especially the ultra rich, while poor people seek populist men on a white horse who promise to fix everything as they are picking everybody's pockets.
20
If Federal loans became a “profit center,” under Bush, that got undone fairly quixkly under Obama.,and of course, that undoing—like other financial protections—got ripped apart very quickly under Betsy de Vos and the Thing in the White House.
1
@Robert wrote
"If Federal loans became a “profit center,” under Bush, that got undone fairly quixkly under Obama."
Perhaps you weren't paying them as I was. Rates of 7.5 to 6.5% in an era where inflation was near zero and for-profit mortage rates were 3-4% How is that a 'fixed' problem of the feds treating student loans as a profit center? My studentloans.gov 'Parent Loans' ate of half my retirement savings.
2
What is not discussed is our current deficits. Can we run trillion dollar deficits forever. If that is not feasible what will be the impact of declining deficits be in the future.
3
What is totally being disregarded in all these discussions about austerity is the issue of the underlying strength of an economy. Does the economy have a sound strucure? Are the institutions strong?
When an economy is as much out of whack as that of Greece, deficit spending, particularly when out of control, only aggravates the problem. There was/is very little productive capacity in Greece and its institutions are extremely weak with very high corruption. Deficit spending in Greece meant that there was increasing purchasing power which went straight into imports. Greece became a turn-table for money: money flowed into the economy as debt and left the economy as current account deficits and capital flight.
1
Did you read the population growth article too? Have a look later. The nation's population grew at the lowest rate in a century. My reflexive thought was; well, yeah, Trump! The nation is so full of hate and anger, there is less love.
I think this might be a really good theme to write on as to the consequences in the national economy from future tax revenues to elder care. There will be exponentially fewer consumers in the future as well. I would love to read your take on that theme. Please do write about it. I'm no expert, but a serious curtailment of the economy seems predictable as a result of many fewer millions of people.
3
'Why is austerity in a depressed economy a bad idea?'
This is the question which most Republican Executives (Jamie Dimon is a great example of this) don't seem to be able to answer.....which makes me think of examples of why Business is actually much more wasteful than government:
Executives don't seem to have ever heard of the 'Cash to Cash Cycle' (cash>inventory/services>sales>cash). They don't seem to understand that prosperity comes from the turnover of cash & the flow of cash......rather than sticking cash in a mattress.
5
As an American expat in France for 17 years I admire the effort the French government is making to improve the lives of French citizens.
Modest affordable housing is being built for young middle income couples with children, a strong French value.
Electric cars are being heavily subsidized to reduce pollution from diesel and gasoline cars. We own a hybrid.
Substantial tax breaks and funding are given to young couples for having and educating children.
All in all most government efforts are positive economic efforts. The current strikes are a reaction to a threatened change in pensions by government. People are living longer so actuarial outcomes argue for raising the retirement age.
Ultimately, the French citizen usually has the last word for government legislation.
10
And yet the citizens engage in violent protests because free stuff will never be enough.
1
Deficit whinging didn't start 10 years ago, but grew out of Reaganomics four decades ago.
Supply-side economics will not stay dead. The GOP does a sequel every time it comes into power: Trickle-down Drips Again.
The "1000 points of light" of the elder Bush's administration were an attempt to dump government safety net functions onto charity (ignoring the fact that charitable giving would have had to be many times greater than it was).
When Bill Clinton was elected in 1992, he brought in the so-called deficit hawks ("welfare reform") to show that Democrats could do leaner and meaner government.
The Republicans are just meaner. (Their current idea of "leaner" is imposing restrictions on food stamps that don't even save what they cost.)
Between the two fiscally responsible Democratic presidents, Bush and Cheney spent the Clinton era-surplus on tax cuts for the rich, a zillion-dollar off-budget Mideast money pit, and a Medicare prescription drug program that benefited insurers and pharma as much as seniors.
Does anybody remember GWB's big idea? After being relected in 2004 he proposed privatizing much of Social Security...via the stock market. He didn't blink when describing the projected $3 trillion changeover cost.
When the economy cratered a couple of years later, some people got cold chills thinking about what might have happened. Sadly, not GOP policymakers and economists.
34
Stimulus and austerity both have their place.
The problem is how much, where it's directed and when to turn it off.
In 2008 the Australian Government had no net debt. Following the GFC they provided stimulus through various means including sending payments to all tax payers under certain income levels (some were dead, some overseas and a number of the very wealthy also received them), and introduced a number of other spending programs on infrastructure and social welfare.
So 12 years later they now have a debt of $600B and expect to have the first tiny budget surplus in 13 years this year.
While we haven't had a recession since 1991 the economy remains flat, with many of the same complaints here that I read in comments in the NYT.
Personally I believe in our case a short, sharp recession in 2008/2009 would have been better overall for Australia.
Australia hasn't had QE (yet) either. I'm not sure how QE works, but seems to be a process to make failed financial market operators rich again.
Maybe the developed world just needs to get used to low growth being the new normal.
4
You've confirmed my fear. My middle class status is one stroke away from an unforeseen event.
10
I usually agree with Paul Krugman, but I think he's wrong when he says that increased debt is the main reason for our good economy now. Increased debt may be PART of the reason, but I'm pretty sure that the MAIN reason is fracking. Nothing else pumps the economy up as fast as cheap, abundant energy.
4
Not enough time is spent discussing Trump's claim that his policies have brought prosperity. The best that can be said for the current economic situation is that we are burning the furniture to heat the house. And in this respect I respectfully disagree with the (perhaps unintended) implication of this column that government spending can continue to rise indefinitely.
The bill will eventually come due. If we run spending out of control, as Trump has, and at the end of the day we have nothing to show for it -- no investment in infrastructure, no investment in education, no investment in providing opportunity to those without -- then there will be no way to grow our way out of the problem.
12
Wow. I thought I knew what was going on, but this aptly ties it all together far more succinctly. I had naively assumed that this was largely due to the pace of technology advancements (and there is a bit of that), but you are clearly correct. Without austerity measures, people can naturally move on and more easily be retrained. As you say, Obama and Bush seemed to be reasonable in their approaches, but ultimately the cost of this error could be staggering indeed.
4
It would be great if some of this deficit was incurred by federal monies devoted to improving the nation's highways, airports, railways, .briidges and tunnels. I think it's called infrastructure and need not be followed by the word week.
11
Although they may not have been the main drivers of the austerity policies, Joe Biden and Barrack Obama accepted and went along with them, in part to naively promote a bipartisan grand bargain with Republicans. As the two highest politcal leaders in the country, they hold a lot of responsibility for allowing this destruction to happen. This was Obama's greatest weakness. And Biden still claims he wants to do the same even though he was a first hand witness to it all - why are so many Democrats supporting him?
13
Because we have a grip on reality, and know that that’s not what happened.
Go thou and read.
1
Spot on. Certainly consistent with what I have found in my research, and with what I learned in 1st year grad macro, everything since, and tbh, everything before I even entered grad school to be a PhD economist. This is not new science, or wacky offbeat theory. The empirical regularity of Keynesianism is stunning. It's also stunning to see the willful ignorance of this regularity by bankers and politicos throughout the West. It's good to see Dr. Krugman extending the analysis into political economy, that is, the political effects of economic policy, and the economic effects of political policy. That is his wont, of course, and his charge at the Times. Thank you. --Dr. Bill Luker Jr
19
I'd feel better about this if I was more convinced the real lesson had been learned: never give Republicans the benefit of the doubt on anything.
15
Unfortunately, the idea that households paying down debt means government must be adding debt wasn't part of the political conversation. Hopefully, we've learned our lesson. A brief recap:
Republicans love to blame Obama for the slow recovery, but something unique in post-war history happened from 2009 to 2012: U.S. households actually paid down private debt levels, thus slowing the economy, as opposed to borrowing and increasing debt levels as they had the entire post-war era.
From 2000-2008 during the housing bubble years, U.S. households added nearly $8 trillion in debt, boosting economic growth unsustainably.
However, from 2009 to 2012, they paid down nearly $1 trillion in debt total. This swing from borrowing $1 trillion in 2007 to paying down $300 billion in 2009 was a primary cause of the famous "$1 trillion hole" ripped in the economy, about 5-6% GDP.
Obama inherited a deficit that ultimately topped $1.4 trillion in fiscal year 2009, the last year budgeted by Bush. After that, the deficit fell consistently all the way to $438 billion by 2015, at 2.5% GDP about the historical average. By holding spending flat at the $3.5 trillion he inherited from 2009 to 2014, Obama cut the deficit as revenues recovered.
Today however, with 3.5% unemployment and record real median household income, we should be running deficits around historical average, not 4.7% GDP and $1 trillion.
3
My job was cut on my 59th birthday in 2010 and I was unemployed for a year and underemployed for much of the remainder of my career. I realize that the Republicans were trying to obstruct Obama and keep him from leading a recovery rather than to contain inflation. What I don't understand is when the Democrats controlled the Congress they didn't work on better stimulus, but instead spent all of their efforts on Obamacare rather than putting people back to work.
9
Unfortunately, Paul Krugman is probably too optimistic when he concludes that the age of the deficit hawks is over. Of course, the Republicans are not going to come out for repealing the Trump tax cuts for the rich and corporations. But any day now, I expect to see "responsible people," calling for cuts in entitlements. That means cuts in Social Security, Medicare, and Medicaid, when progressives want to cut tax breaks for fossil fuel companies and impose taxes on carbon emissions to slow climate change.
8
That is always their goal.
1
I agree with the history of the deficit obsession. I was there and watching the development of the deficit/austerity political rhetoric including the various gangs that were convened to come up with a fix to the deficit problem.
I note that there is one component of this politically rigged deficit scare worth noting and it is the Tea Party and the work of the group funded by the medical insurance industry to create the deficit howl out of the wolf in sheep's clothing to scare the voters into believing that the Obama Administration was fiscally irresponsible and we needed to elect Republicans.
Another factor, not broadly recognized, is the largest causal factor that contributed to the deficit was the major drop in tax receipts as a consequence of the downturn in the economy.
So you are absolutely correct that it required the heroic efforts of Ben Bernanke (you were one) to come up with the creative solution to pump spending power into this economy. As everyone who had a grain of sense recognized at the time austerity was a fiscal drag on the recovery. Dr. Bernanke made this point in his testimony but his point did not catch the attention of the popular media.
My message is, we have a lot of work to do, to correct the mess created by the last tax act: not enough people are making a livable wage, receiving good healthcare, infrastructure is decaying and antiquated, and we must mobilize our research assets to develop a GLOBAL energy solution to fossil fuels.
5
Spending cuts in a recession are a terrible idea. But the idea that a budget should be approximately balanced (by some definition) over the long run is necessary. If neither party advocates for an approximately balanced budget in the long term, it seems guaranteed that both parties would agree to continually ramp up deficits to keep getting incumbents re-elected.
We are, as a group, not so good at thinking about the future (see warming, global). Without a concern for deficits, spending would grow no matter the social and political harm from wasteful or fraudulent spending targeted at pivotal voters or from cutting taxes for favored constituencies. If we are not at war, adding somewhere should generally mean subtracting somewhere else. Without such trade offs, voters will have a hard time judging decisions on their merits.
The goal of the federal budget is not to myopically optimize the economy, it is to grow the economy while preserving our politics. The latter of these is currently far weaker than the former and thus deserves a majority of the consideration.
4
Perhaps if we considered the business political relationship as that of an ongoing profitable alliance rather than a balancing scale held in taxpayer hands, a clearer picture would emerge.
In any recession or depression there are those who never lose a cent or make a political misstep. Few politicians lose an election and fewer millionaires lose their shirts in either scenario, while those who actually work pick up the tab.
Why those who pay their share of taxes not only support this ongoing charade, but also applaud every time the same old curtain is raised on the same old melodrama appears to be a programmed fault.
3
@Ian MacFarlane
retired history major and attorney F/71
All of us need to reread "WHAT'S the matter with KANSAS?" Caps and lower case in original book title, leaving us "What is Kansas?"
Our classic tale of why captive populations vote against their self-interest. Hadn't occurred to me that this could be "a programmed fault." At least beyond the one-in-four who are cult followers of tRump.
1
The similarities of our present situation with the great depression followed by WWII should not be casually dismissed. Recall, WWII followed 10 years after the start of the great depression.
At 12 years post financial crisis it isn't clear if we are going to have another world war, or civil war(s), but the happenings around the world have seemed linked to the financial crisis for some time.
8
This is a pellucid analysis. However, I wonder how many people really understand economics––or have any interest in it at all. 75% of people cannot name the three branches of government. It seems people with knowledge are fighting a constant battle with those who are not just miseducated but also those who have no knowledge at all. I saw bumper stickers in the early Obama years about stopping the spending. I imagine these people got their news from right-wing sources (the miseducated). How to educate the rest of America will be the test of our time.
7
Almost all austerity is artificial.
What is real causing the artificial austerity is concentration of wealth.
What causes the concentration of wealth is lopsided bargaining power.
Level out the bargaining power and austerity vanishes as an issue.
Remember the system is based upon Free Contract. In such a system bargaining power is everything. Level out the bargaining power and almost all problems will go away.
2
Dr. Krugman connects a lot of dots here, but left out one data point he correctly hammered hard on more than a decade ago, when we were still deep in the toils of the Bush II recession.
At that time I learned the term "rentier class" from Dr. Krugman and have not forgotten it. He employed it to refer to the real ownerhsip class, those who controlled most of the wealth and did not want to see that wealth's value diminished by inflation, regardless of the slim dangers of such that might be brought about by too much deficit spending and easy money.
It's was and is the old free silver and cross of gold thing from the late 1800's when McKinley beat the populist champion, Bryan, despite running as an honest representative of corporate power and the business class.
Trump represented the same ownership interests. Taking a cue from the Republican deficit hawks, he just lied about it.
5
The biggest losers of the Great Recession and the subsequent Great Austerity are the Millennial generation.
Starting out their careers in this period, with a mountain of student debt and in a depressed job market and with exorbitantly expensive housing costs, their financial life prospects were irreparably harmed. They will never fully catch up.
The societal impact of their collective financial distress is enormous. In particular, because of the financial cost, they are forced to delay, or in many cases forego altogether, marriage and child-bearing, a development which will have significant consequences for the future of our country.
The social and political costs of the Great Recession are still not fully understood, but nonetheless will be felt for generations to come.
7
@John M , and yet many are beneficiaries of very successful boomers: who are paying them annual “salaries,” tax free; buying them houses; taking their growing families on fabulous vacations or housing them at family compounds; and after all this largesse, these very special millennials will pay zero taxes on their inheritance. Let the rest of ‘em eat cake!
1
With respect to economics, I am an ignoramus. I began reading Mr. Krugman's essays a decade ago because I enjoyed his political views, but along the way I learned that I had been suffering from some misconceptions about the national economy:
(1) The economics of the country is like the economics of a household.
(2) During lean times a nation should pinch its collective pennies.
(3) Running deficits is inherently bad. You live high now but are passing the bill to your kids.
(4) The ideal Federal Reserve rate is zero.
(5) The state of the economy reflects the economic wisdom of the current president.
Apparently, these self-evident truths are, in fact, false. But I suspect that most Americans are no better informed about such things than I was. Perhaps a basic course in economics should be a standard part of the public school curriculum.
7
@D. C. Palmer It's not? When did that happen? I had three courses in economics and four courses in high school. I learned how to keep and balance my checkbook in grade school along with other household activities, such as, comparing prices and selecting the best meat I could afford. When I entered college for my business degree, I was saddled with a course in macroeconomics and another in microeconomics, six accounting courses, two investment courses, and a plethora of business philosophy courses - the rub came in when I realized I already knew that stuff, I just sailed through those courses. I was lucky that the college I went to was a liberal arts college run by a Catholic Church. It required its students to enroll in at least four "divinity" courses as well as mandatory English and literature courses. While others complained about those courses they felt had nothing to business, I was literally in heaven. I attended a Messianic Jewish church (also called Jews for Christ locally) where the rabbi conducts a normal service based on the Torah followed by a New Testament-based Christian service complete with Communion. I was moved to tears by the beauty of that service. I ask again, when did economics and basic business disappear from elementary and high schools? How can today's students enter into college so ill-prepared for life? Yes, college can be used to hone those skills but it should not be the only source of those skills.
2
if the US dollars no longer desire by the rest of the world, we would become Greece in a heart beat, is that something we should concern ?
3
We benefit greatly from the fact that the dollar is the reserve currency for the rest of the world. Also when our government borrows money, it borrows in dollars, our own currency. During the Great Recession, credit markets and the Federal Reserve kept our interest rates close to zero. The Fed bought trillions of corporate bonds in a policy called quantitative easing, which kept those interest rates very low also. That easy money supported faster recovery in the private sector. The most conservative anti-Obama economists claimed this would lead to high inflation, but the verdict of history is clear that did not happen.
Greece was in the unfortunate situation of having given up its own currency to join the euro zone. Greece had unemployment approaching 30 percent. Though it needed deficit spending to get out of near depression conditions, it already had much higher government debt per capita than other eurozone nations. Easy money might have helped its private sector, but Germany, which had the largest economy in the eurozone wanted tight money and austerity. With France following Germany's lead, Greece's left-wing anti-austerity government essentially surrendered and adopted tight money, austerity measures. The only alternative would have been to abandon the euro and revive the drachma, which they concluded would not be accepted by international markets. The lesson is that a country without its own currency has limited power to set its own fiscal and monetary policy.
4
"At a time when so many families are tightening their belts, he's [Jack Lew, Obama's budget director] going to make sure that the government continues to tighten its own."
Barack Obama, 2010 State of the Union address
Sadly, with millions losing their jobs, livelihoods, homes, and savings, Barack Obama felt bound to pitch austerity and even to form a deficit commission, thereby bolstering right-wing talking points and placing "bipartisanship" above the needs and well-being of ordinary citizens. What was he thinking?
10
Austerity around the globe has hastened the fall of the liberal order, but it is just an accelerant and not the whole story.
I think the roots go back to the change in income distribution. Up until the 70s as the economy grew so did everyone's income. Since then almost all the gains have gone to the top .1% and some have seen their incomes in absolute terms even drop. While people (except the very rich) may be willing to share some of their gains, when things are static it becomes a zero-sum game. Politicians promising to "bring the jobs back" and to "clean out the swamp" become attractive to those who figure they have nothing to lose by trying.
18
Sadly, politicians today rarely offer any real solutions to real problems; instead they, like advertisers, use whatever means available to create fear in the minds of the electorate and then sell their audience patented solutions to address those fears; fears which all too often have nothing to do with actual problems at hand. "Nobody ever lost money underestimating the intelligence of the American public." - P. T. Barnum
12
What - no mention of Mark Byth's book Austerity: The History of a Dangerous Idea?
4
For years I have held Paul Krugman in high regard, and still do. But for years he has advocated deficit spending in bad times, but never (that I have seen) addressed this question: Is there a limit to national debt? Is there ever a time to run a surplus and pay down the national debt? Is there any danger that interest rates might hit 10% (as they did ca. 1980) at a time when the debt is 100% of GDP?
4
How worried do you need to be when you owe yourself money? A lot less than when private sector banks owe other banks money. Of course, you need to consider what is money. The vast majority of it is created by private sector banks, out of nothing, for the wealthy, who use it to financialize the lives of everyone else. I mean, have you tried to buy a house, an education, or healthcare recently?
2
I cannot point to a specific column, but I am certain I gave read columns in which Krugman considers toe question of when it is a good idea to reduce the deficit. My memory is that he recommends shaving the national debt during boom times. I also think he said he did not have an algorithm to identify such times and the right amounts.
1
We ran a small surplus in the late 1990's, with a Democratic President and a Republican Congress. I don't recall Krugman ever saying that was a mistake. The economy was booming and investors were benefiting from a bubble in technology stocks, which was about to end. More important to bringing the budget out of near balance was the Supreme Court decision that Florida's electoral votes go to the candidate leading on December 5 (George W. Bush) rather than the candidate leading after the most accurate possible recount (Justice Scalia ordered the halt of the recount in December, the press recounted all ballots months later and determined a full recount would have declared Al Gore the winner.) With Al Gore as President, perhaps no Bush tax cuts to increase deficits. Al Qaeda would still attack on 9/11. But I don't see Gore starting a war with Iraq based on phony weapons of mass destruction; a Gore War on Terror would have looked very different. Maybe a Republican would have run against Gore in 2004 calling for a war with Iraq that would pay for itself.
5
How to reconcile the opposing forces posing as having the answer to our economic woes? We have to find a way to bridge that gulf. Better yet, fix some bridges. Put money to work on research, development and projects for current needs and most importantly, anticipate the future. The future is coming fast, in fact it is already here.
2
@richard wiesner
retired federal attorney F/71
Too late and too much debt and too much capital owned by the top 1% in this country. Of which, at least $4.7 trillion is parked in banks creating no wealth for anyone. Source: Oct. 2019 BLS and Federal Reserva data.
Since Blue States on each coast produce the vast majority of the national GDP, products and services, it's time for a breakaway of Blue States America/BSA. Leave the unpayable debt to the Red States oligarchs and bought-and-paid-for Senate and SCOTUS. I look to Jerry Brown, a Vietnam cadre and friend, former CA governor to lead this venture.
Keep our constitution except for the Second Amendment and watch democracy flourish, especially if all the states in BSA adopt CA's approach to voting for State offices in primaries.
One of the best POLITICO Friday cartoons this year showed malign Mitch and Rand Paul, KY Senators in full Hill dress, pigging out with big grins at a trough of $1000 bills with this label on the trough: CALIFORNIA !
1
At some point, the enormous debt run up under the Trump Administration will either have to be paid ( painful ), or defaulted on ( also painful ). Right ? If not, show me why.
7
This is why it is of the utmost importance that the Democratic candidates at least give some hint about what type of creature will and won't be in their cabinets. Obama delegated a Citibank exec to pick his 2008 cabinet, with the predictable result that he ended up giving away the store to Wall Street, asking nothing in return. None of the so-called "moderates" are likely to delineate their criteria however, because they're actively courting corporate bundlers, and Bloomberg's cabinet would be nothing more than a tasteful recreation of the Goldman Sachs boardroom. Even the fact that Warren and Sanders haven't made the effort to give a rough sketch of their requirements for cabinet posts fills me with suspicion.
4
What austerity means is laying people off and reducing production. How is lowering the Gross National Product and having less going to improve an economy? It's counter-intuitive.
4
It strikes me Dr Krugman is correct for the US, and for countries that can borrow in (and print) their own currency. But what was the choice for small countries such as Ireland, who were locked out of credit markets during the crisis? Their governments couldn’t engage in any fiscal stimulus. And while Greece suffered badly, Ireland’s austerity was relatively brief and was followed by a strong re-bound.
2
@Michael Krugman has an answer for that: countries should not give up their currency because it puts them in a bind when we have a crisis like we had 10 years ago.
3
Yeah, spending public money during a recession stimulates the economy, but it's a sugar-high if the money is diffuse - like now, with non-directed corporate tax cuts, un-necessary defense spending and retirement account changes. In other words, deficits used to build or repair public goods, like infrastructure, public works and data hubs pay off later as these investments get used to build or expand businesses or expand educational opportunities.
Of course, the Trump-cuts have just directed the public money into the top 0.1% pockets - with nothing to show for it but a very healthy stock market. And the bill gets sent to the peasants.
5
Looking ahead to the next downturn - and there will always be one - things look ominous. Economic downturns are always painful, but the next one will occur with unprecedented investment in stock markets. Stocks are worth what someone else will pay for them, and in a downturn buyers will offer less. In a market downturn money invested in stocks doesn't go anywhere else, it just disappears, as if by magic. Investors are overweight in stocks now because TINA, There Is No Alternative. Interest rates are flirting with zero.
3
The left behind voted for Trump in order to be lifted out of their downward spiral. Has this happened? No. Small town and rural America is still suffering. The farmers are enjoying massive soviet style bailouts, but factory workers still have no factories to work in. But yet, the markets are soaring and the rich are getting richer. Big cities are prospering. Urban cores are getting gentrified and real estate prices keep climbing. How did this happen in the wake of all this deficit fueled spending?
The money went to the people who didn't need it. Markets don't care about equality or opportunity. Markets only care about profits and those that own the most assets make the most profits. Government, on the other hand, (hopefully) cares about equality and opportunity. Only by spending money where it's needed can these goals be achieved.
Tax breaks cannot get the job done because they only serve to enrich the rich. We see this where most of the massive corporate tax cut was used to buy back stock and pay down debt. It was not used for business investment which actually has declined over the last two years. How did that happen?
Why should business make potentially risky investments when they are making more money that ever from tax breaks. These new profits have actually had the opposite effect of reducing the desire to invest. It's too easy just to put the money in your pocket.
That brings us back to targeted government spending. Didn't and hasn't happened.
1164
@Bruce Rozenblit
"The money went to the people who didn't need it." Precisely, and it's been very obvious that high-priced assets have inflated ludicrously (this includes art, classy real estate, and -- surprise -- stocks) for one simple reason: supply (of money). After all, don't the fiscal conservatives constantly tell us that printing money results in inflation? The inflation showed up -- where, and only where, the money went.
83
@Bruce Rozenblit
Excellent comment.
...and lets never forget that, right now, there are hardly any entry level homes for first time buyers or people who want to downsize. Why? So many houses went into foreclosure and were bought up by big companies at firesale values because banks wouldn't discount mortgages to the underwater homeowners.
These companies are not putting these homes back in the resale market because they prefer to hold on and collect extortionist rents.
Sometimes, I hate to say it, but I do think we may need a revolution to cleanse some air and some hides.
How angry it makes me to see how some have suffered because of greed and incompetence.
231
@Bruce Rozenblit
Everything I've heard and seen tells me its getting really bad in the rural areas. I'm looking for a place to retire to and I can not believe how cheap houses are in rural areas and how long they stay on the market before being sold. That is not a good sign.
81
The GOP is doing what the GOP has done for decades: being hypocritical and attempting, at the same time, to give welfare to people and corporations that do not need it. What I resent is how much of a break the richest receive while continuing to complain about what they are expected to pay. Then these same entities hire armies of CPAs and lawyers, pay them obscene sums of money just to avoid paying taxes. In the end they do pay. It's just that they are safeguarding the wrong things.
This country is in dire need of an upgrade/rehabilitation plan for every component of its infrastructure. It would be money well spent. Yet Trump hasn't bothered to do anything about it but blame the Democrats because they criticized him. If that's his criteria, no criticism, he's got no business being president of anything.
Since 1980 (maybe even earlier) the economic trajectory for working Americans has been downhill. Most people born after 1954 have not seen their standard of living match that of their parents. Or perhaps it's the economic security. We've all either experienced or seen people we know experience long term unemployment, medical bankruptcy, underemployment, and wage stagnation. It's hard to hope when the only thing that increases is the cost of living. It's harder when our politicians keep on giving breaks to the loudest instead of the workers. Harder still is watching one party continue to destroy our meager social safety net.
12/30/19 10:21pm first submit
742
@hen3ry
"It's harder when our politicians keep on giving breaks to the loudest instead of the workers."
To the loudest? No... To the deepest-pocketed donors. We wouldn't be here if it were any other way. Money in politics has to go. It's either that or we are as good as done.
Where we are now is the stage at which we are all being exploited for existing. Purdue Pharma, Facebook, Google, the software companies that provide tracking apps in our children's schools - all make tremendous profit from the data we generate. Those are only some of the ways wealth is being extracted from us passively.
113
@Rima Regas I got tired of saying deepest pocketed donors and said loudest. In my opinion, although they may not be loud in public, I'd bet anything they are in private. I'd bet they make their expectations quite clear in a private setting. That's where they do best: where it's quiet and where there are no distractions like constituents asking for help.
80
@hen3ry
You are correct. Most right-wing billionaires don't tell the press what they're doing, but they are doing it.
68
Starting in 1981, the GOP doubled the federal debt, then doubled it again, then doubled it again, for an eight-fold increase, while cutting taxes on the wealthy and increasing payroll taxes on everyone else. The deficits were meant by the GOP to increase the wealth of the wealthy. They were never intended to do average Americans and their infrastructure any good, so when Democrats were in control the GOP did all it could to cut those deficits, and they succeeded. Clinton was allowed to balance the budget, remember, but that was because otherwise he would have used the borrowed money to benefit all the people instead of just the wealthy.
394
@Long Memory He was allowed to balance the budget in return for privatized prisons, three strikes and you’re out, and “welfare reform.”
21
@Sarah L. And Glass-Steagall repeal and non-regulation of derivatives. Both pushed by "Democratic" financiers Robert Rubin and Larry Summers.
14
@Long Memory No Democratic President in history helped the GOP more then Bill Clinton.(Obama, a close second) He got rid of those pesky bank regualtions from the 1930’s, and got NAFTA going, essentially handing the Mid-West Industrial Democrats over to the Republicans. (They have no where else to turn, i.e, Trump.)
LBJ, handed the South to the Republicans with the equal Rights Legislation, Clinton got hordes of Mid-West factories moved out of the U.S. All that is left, is both coasts. We have seen the enemy, and the enemy is the very Democrats we elect.
They are, Republicans, who are pro-choice.
And, I'm certinly including Obama, with his 8 million home foreclosures, Romney care, "Bronze Plan,” payoffs from the banks for “speeches.” And, his historic legacy, handing the Republicans, the Presidency, both Houses of Congress, the Supreme Court, and forty plus Governorships.
Think about it. Fact, Trump, is better at getting Democrats elected than Obama was!
10
It is indeed amazing to see all that will be sacrificed by 'elites' in pursuit of feathering their own nests, no matter the damage to the country, its citizens, our allies (economic, political, and defense), or our country's ability to lead on the world stage.
What immediately springs to mind is the meeting with Newt Gingrich and other GOP'er pooh-bahs on 1/20/2009 in D.C., plotting to obstruct every Obama initiative - no matter what.
But what most stands out about expansionary austerity itself, is the output gap - which will never be made up - as well as the enormous stock market surge/grift funded by the corporate tax cuts in 2017, and further propped up by Fed rate cuts.
The stock market is not the real economy - it is a transfer payment from the U.S. Treasury - thus the market records are driven by corporate welfare via the 2017 cuts.
The destruction the elites are perpetrating on our institutions - evinced by Gail Collins's 'herd of rabid ferrets' GOP'ers - will last so much longer than their miserable spoils.
517
@R. Law The elites will be in a country of their own surrounded by the masses wanting their heads, we will just cancel the debts of all and institute a different currency effectively ending their wealth.
5
@R. Law you are totally wrong about what constitutes elites. Billionaires who have inherited wealth are the salt of the earth. The real voice of the working man (yes, man). The elites are the likes of social workers, scientists, community activists and university professors. Down with that sort of thing. To further compound their elitism, they probably read the NYT.
2
@R. Law please don't demonize elites. Elites are wealthy educated people and many elites are Democratics who vote for increases on themselves to support programs for the middle class.
Instead substitute elite for Repubs. Only repubs act greedy. Not one program that benefits the middle class was ever initiated by the Repubs
10
I've learned three important economic lessons. first, from austerity comes nothing positive. Second, during times of economic stress, governments need to pour money into projects that employ like infrastructure. Third, any Republican that tells you a tax reduction for the rich will accrue to the benefit of the rest of the economy are liars. It has never happened.
1767
That old trickle down from st Ronald , which they didn’t even try to disguise. They called it trickle down economics daily. . Everyone knows money doesn’t trickle down.
74
The problem in America and most of the developed world is that a lot of people don't want to pay their fair share of taxes. A great many people in America are ignorant enough to keep voting into office politicians (members of the GOP) that cut taxes that benefit only the top 1% in wealth to the determent of the bottom 99% (especially the bottom 99%). It only proves my point that a great many people in the developed world (especially America) are ignorant/corrupt/gullible/greedy.
76
@jerome stoll Your second point is important. One should look for that goal in the next President. I've traveled to a number of different countries, and it seems in many areas, America is lagging behind. We shouldn't be. There is plenty of human resource here to put people to work on internal improvements/infrastructure!
39
I believe that the GOP beats the drum of fiscal austerity when the Democratic Party is in the majority simply to prevent them from accomplishing their goals. Conversely, the GOP ignores any form of fiscal responsibility when in the majority to create such horrendous budget deficits that when the Democrats are in the White House they are hamstrung and spend eight years digging out of it. Then the GOP gets back in and blows every nickel on tax cuts and arms races.
1549
@Luann Nelson - Wow. You just described the past 30 years to a T. Clinton hands a huge budget surplus over to Bush Jr who promptly cuts taxes massively while at the same time getting us into a war that costs us trillions and then leads us to the Great Recession in 2008.
Obama takes over at that point and despite 6 years of massive obstructionist actions by Republicans, fixes our economy and hands the reins over to Trump who promptly doubles the deficit to a trillion/yr all due to massive tax cuts all while cutting healthcare, destroying our environment, etc.
It's so funny to hear about what a great job Trump is doing w/ the economy and the stock market. Of course, when you've massively reduced revenue for the US gov't and hand it over to corporations who do not create more jobs but engage in stock buybacks to boost their stock prices, what do you expect?
The next wave will be when Trump and the Republican's reckless policies again destroys our economy and the next Democratic president will need to clean up the mess. Then the tea partiers will come out again and cry about deficits, fiscal responsibility, etc. Where are they now??? What happened to their purity tests? It's so clear now that Republicans and their voters think that rules only applies to Democrats and, frankly, no rules at all apply to any Republicans.
248
@Luann Nelson I call this the Great American Wealth Pump (GAWP). Republicans use the US Treasury as a conduit for transitioning wealth from the many to the few. Elections cycles are used to cycle money in and out of the Treasury: When Republicans are in power, they deplete the Treasury by giving tax breaks that primarily go to the wealthy. This depletion and nothing else contributes to losses for them at the end of the election cycle. Democrats take over and try to clean up the mess. But this requires money to support programs and services, which requires raising taxes on the middle class. Republicans scream austerity and don’t let any of those programs get funded. The Treasury is replenished and Republicans have great election talking points about tax and spend, do nothing Democrats who just want to take your money and give it to all those undeserving “others”. Democrats loose, Republicans are back in power with a replenished Treasury, and the cycle begins again.
59
@Luann Nelson ”Nail hit on the head” truth your comment. And if the Democrats get the Wt House in November they will have to deal with the towering deficit Trump’s enabling. plus the lax regulations on the finance industrial complex the GOP has so tirelessly labored for:( those hens will come home too.
Not only is the a great age of anxiety, but irony as well.
54
It's good that Krugman changed his mind on some issues. Specifically he isn't ridiculing Sanders, as he did in 2016. He has noticed that Sanders is an FDR Democrat and Sanders Socialism is not of the Marxist kind. FDR empowered Labor by making Unions legal and he created the GI Bill and Social Security. FDR didn't believe austerity was the fate of the working class in our Republic and he used progressive taxation to reduce economic inequality, One of the good things happening is that Centrist Pelosi seems to be going for letting Medicare bargain some drug prices. Next how about some Infrastructure?
5
@Saint999 thanks to you Albuquerque. I agree.
Don't cut taxes on the rich. Don't trust anyone who says otherwise.
Now, this doesn't conversely mean "Trust anyone who says to tax the rich." It doesn't work that way. But the above maxim, by itself, is sound.
7
Judging by how the wealthy, as represented by the Trump Wall st administration and the Congressional Republicans, who propelled him into power, passed the tax cuts legislation that resulted in windfalls for the wealthiest who horded money, it appears the original idea of austerity originated from the wealthiest. Republicans have always served the wealthy to stay in power, and the tax cuts is the greatest testament to that as they sought campaign dollars with legislation tailored to those with wealth.
Indeed! Follow the history. Austerity was a rich idea, wasn't it?
3
I think the column is spot on, though could use a paragraph on what Lessig calls the Vetocracy, where nothing gets done that the rich who fund campaigns don’t want done. And the rise of the Internet during the period Krugman writes of splintered TV audiences, which had the effect of increasing the cost of reaching a voter (making campaigns more expensive and office holders ever more beholden to the wealthy and subservient to the Vetocracy). Add on to that the rise of the echo chamber of social media, and we’re now at the point where federal policy makers are hamstrung (and so the Fed rescued us, not Congress), while HHI has been flat for 30 years (globalization, automation and more), and everyone is mad - except the wealthy who get by with their Vetocracy. It’s a perfect storm, where now Times readers (I imagine educated and once open-minded) flood the comments with vitriol at the slightest mention of collaboration with a Republican who held on to office by refusing to confront Trump, no matter how futile that is. There are ways out of this, starting with respect for others and their views, and a commitment to bettering the whole of us, even at the expense of a few.
2
"...completely failed to deliver the surge in promised investment"
To begin to understand economics, study rational expectations. Three intense episodes in the last 14 months.
1)Rate of business investment in 2016: up $8 billion
2)Rate of business investment under Trump: up $360 billion
3) As the Democrats took the House, the stock market tanked $5.5 trillion, consumer confidence dropped 10 points, business investment, up $55 billion per quarter, plunged $45 billion, a $100 billion swing.
4) As Pelosi/Trump regained control, the stock market and most of consumer confidence recovered. Business investment still lags.
5) As Elizabeth Warren went from a 52% probability of being the Dem presidential candidate to a 13% probability (Predictit political marketplace), the stock market soared $3 trillion.
6)Business investment will now start to crank up $55 billion a quarter again.
Going to be a wild year economically speaking. No austerity in sight. Supply side economics and Keynesian stimulation both going full blast. With $900 of money circulating for every $1,000 in economic activity, money is going full blast too.
Everyone can claim credit for success: supply siders, monetarists, Keynesians.
3
@John Huppenthal All of the expansionist numbers are unable to dispel the notion that under DJ Trump we are not headed in the right direction.
4
@John Huppenthal
You have given proof to my suspicion that corporatists and the uber wealthy can manipulate the economy to make certain politicians look better and others worse.
1
Actually, austerity does work for the politicians who wield it. The republicans did not want Obama to have a successful economy, so they prevented the kind of spending that would have helped the nation. Party over nation is their mantra, then and now.
128
The record of Republicans in power is clear...their opposition to deficits was one thing...a cudgel to beat Democrats over the head, especially Obama, and Clinton, too. Both Obama and Clinton responded by drinking to a lesser (Obama) or a greater (Clinton) degree, the Koolaid. Clinton co-opted the fakers, fortunately buoyed by a revolution we know as the internet, he beat them by winning the hand they dealt. Of course, Bush43, being a Republican, squandered his fiscal legacy and reverted to typical record-breaking Republican deficits, even ushering in the Great Recession, another Republican benefit. Obama struggled on gamely compromising with them, slowed the recovery, a lot of mischief in that.
19
Yes, we all remember the Confidence Fairy. This was not only a Republican fallacy, it extended to the EU. All the talk in world capitals was of “going bankrupt” from sovereign debt, even though that is essentially impossible.
We now have the worst of policy choices. We have rising deficits at low unemployment with the missing government funds NOT being invested in the productivity of our citizens. When the inevitable downturn arrives, the deficit spending will be enormous and may be politically impossible. That will just increase the danger of a deep depression.
9
Budgets seem to be a economic concept that many politicians will never understand. Yes, there's a time to balance a country's budget. There's also a time for deficit spending.
If our politicians are correct and our economy is doing wonderfully, shouldn't serous discussions take place about how best to balance our budget.
Or, possibly have politicians advise constituents why our budget is in deficit and how the country will earn a return on government borrowing, now and in the future, that's greater than the cost of paying the interest due on the bonds issued to cover the deficit.
There's one thing that I'm certain of: In today's economic environment with low or negative interest rates the cost our government incurs for borrowing money is very low.
As the global economy improves and interest rates rise, the cost of financing our deficit may very well cause the mother of all recessions, or possibly, a terrible depression.
Our country did very well throughout the '50's. Taxes were higher for all tax brackets. Those taxes financed first rate infrastructure, an interstate highway system, good schools, etc. Interest rates were low and the cost of living was moderate.
It's virtually impossible to compare one decade against another. Our expectations of what's normal are so different today.
I've never been more fearful about the future because we have a president who doesn't have a clue about economics and due to a complete reversal in GOP economic policies.
3
This has been a recuring theme with Krugman. Deficits don't matter. He totally misses the point politically. Republicans agree with him 110%. So long as Republicans are in charge deficits don't matter, because Republicans are serious. Look at it this way. Can you trust Bernie or Warren blowing out the deficit? No. Do you trust Trump blowing out the deficit. Yes. I don't make up the rules. I just observe and report. So Krugman's arguments re-elect Trump. Because...if we are going to have blowout deficits...it has to be with Trump. Not Bernie.
1
@Bananahead
Krugman never said that deficits don't matter. He's denouncing the GOP manipulation of the issue.
44
@Bananahead
Nonsense. That's not what Krugman is saying.
The time to cut deficits is when things are good and the OTHER economy (the one that affects the rest of us, not the top 1%) is humming. The time to spend is when things are slow; you put people to work repairing our old infrastructure and designing and building our new one. eg, fast broadband, like rural electrification in the '30s.
This is what happens when the GOP controls the purse strings: forget about deficits when you can give your buddies fat tax cuts; then when a Dem takes the WH, suddenly rediscover deficits and push to cut spending, putting the most austere of austerities on the backs of the least well off, not to mention at the expense of our environment and quality of life.
Our political and electoral structure ensures that this ratcheting down will continue for a few decades until things get so bad that the Republicans are routed even in the reddest of red states, giving the Dems a rare opportunity to re-civilize our society.
22:35 EST, 12/30
1
@Bananahead
Well, if you trust Trump so well, would you follow him into battle where your life was on the line?
Would you trust him to manage your financial affairs?
Would you trust him with your daughter?
Would you trust him to be a role model for your son?
Would you trust him with your wife?
Would you want to rent a place from him?
Would you want to hang out with him?
If you answer is yes, then, my sympathy.
1
As per Krugman's description of Republicans' duplicity concerning deficits and debt in the last decade: it's pretty hard to know at this point what the Republicans' platform is at rhis point. Trump has turned in It's head much of what Republican belief was just 4 years ago. Oddly, in their cowardice and lack of patriotism, House, Senate, and local Republicans have not only betrayed their country, but their own party. If the country survives as a functioning democracy, it just may preclude the survival of the Republican party as it once existed (how could they be taken seriously anymore)?
8
If you ever read the news stories in the NY Times or Wall Street Journal about Greece in the last decade... people gathering wood in parks to keep warm, practically starving, local businesses destroyed while the EU bank bailed them out... with money that immediately went back to German banks that had loaned them all the money that got the nation into trouble. It saved the German banks and the German government kept suggesting that their banks were "solid", careful lenders and had not created the crisis. This was an economic catastrophe that no one paid attention to.
13
@JL
I was going to post a comment on Greece but yours is just perfect. Thank you.
Yes, I read all those articles about Greece and agree that Germany needs a dressing down over this.
I would also like to add another cost which is that all these factors is what gave China a foothold in Europe with the sale of the Greek Port of Piraeus to China . ..and that has led to lost Greek jobs and reduction of pay for dock workers due to boatloads of Chinese brought in.
Yes, we see the elites that say they know how to run things are really best at cutting off their noses to spite their faces.
4
@JL Americans are not aware of that.
They are completely ignorant of how their economy works, even less the similarity of what happened in Europe.
1
when republicans are in the majority they go on military and tax cut spending sprees and when democrats in office the republicans screech that deficits matter, forever and ever, amen.
51
The so called Meritocracy which has elected//apointed incompetent politicians/economists to leadership positions evidently needs to be scrapped. A legacy degree From Harvard means less than a graduation from Bronx High School of Science. Much more thought needs to be given to how we hold leaders/economists accountable for the actions they proposed and passed. Also how are they to be chosen. Some thought should be given to how we choose technical leadership. Even better would be a study of different choice methods and results. As it stands our progeny is likely to die due to Global Warming. If we cannot even safeguard the future life of our species is economic mismanagement and respect for the elite is a tiny cost. In the long run we are all dead so this mismanagement is inconsequential.
8
Does austerity work? Sounds like it works pretty well from Republicans. Just not so good for the country.
23
If you look at the number of currencies that have experienced periods of rapid, or hyper rapid, inflation, one can see that this is a recurring problem going back hundreds of years. It is something that happens again and again, and it is always a traumatic experience for a nation. I would guess that it happens most often when people think that it cannot happen to their currency.
Even if I like and respect Paul Krugman, I don’t think he believes it could ever happen to the Dollar.
But if one looks around, objectively, with open eyes, it seems obvious that the Dollar is a candidate for hyper inflation during the next 30 years. The world is awash in Dollars, and things have changed a lot since 1950.
Economists like Paul Krugman will explain how it happened after it has happened, but for the moment they are blind to the obvious.
6
@David Martin - There is always another reason for hyperinflation besides printing money.. It is true that if you print money when the economy is constrained, when you can't increase production, it will exacerbate inflation. But history shows it is extremely difficult, if not impossible, to get hyperinflation from government spending alone.
During and right after WWI over 1,000,000 Germans died from starvation. Germany simply did not have enough arable land to feed its people & no money to buy it elsewhere. Food prices went through the roof.There was clearly no way to increase production. But people were starving. So the Weimar government began to print money. Of course, this raised prices further & we got TRILLION mark stamps. But it is important to note that inflation caused the printing of money. Then the printing of money caused more inflation.
In Zimbabwe, the farms were taken from those who knew how to run them & given to those who didn't. Production fell, & printing more money could not increase it.
Venezuela had only one significant product, oil. The value of that product plunged. Then it lacked the resources to produce more
In 1972 the anchovy harvest failed & there was a worldwide shortage of livestock feed & on top of that, a lot of our oil supply was embargoed. Then our economy was constrained & we got excessive inflation.
And so on.
There are NO limits on how much money we can print. It may have bad effects, but the amount available is infinite.
7
Economics is a real science and it is generally excellent in understanding what has happened in the past, even the recent past. But, in its current state, it is generally terrible in predicting what will happen in the future.
2
@Jack Robinson
retired federal attorney F/71
As one immersed for life in a profession anchored in facts and law, I was often annoyed with economists opining in domains in which I worked. Free to tweak or completely change their If-Then scenarios and prognostication.
That changed with the Chicago School of economics and its embrace of behavioral economics. I always recommend people of all ages and education levels read Nudge, by this School's Nobel Laureate. On "why we put fruit at eye level in school cafeterias."
3
@Jack Robinson Economics is not soothsaying. Never will be. It used to be the human factor that could create circumstances that could not be anticipated and now it is computer algorithms.
1
@Jack Robinson Economics is not real science as the experiments can never be completely duplicated. The economy is a human construct and like in bauhaus form follows function.
The last half century saw the floors raised for most of our species and that is still the case but when lowering the ceiling for most to benefit the few is engineering .
Remember 40 years ago when the world was running out of oil?
1
Of course, we did that repeatedly.
In 2001, when the economy was healthy, when deficit spending is the inappropriate action, Bush and the Republicans did precisely that, turning budget surplus into a deficit, just to give tax cuts to the richest Americans (Sound familiar)?
And what happened? When 9/11 hit, that money that we should have been saving for a rainy day, was not only spent, more was borrowed. We then went into 2 wars neither of which was budgeted by Congress, but Bush printed money to pay for it. In 2007, the first signs of collapse came, and in 2008 it hit!
There's a simple answer: EVERY Republican argument is made in Bad Faith, totally opportunist, and totally to benefit the wealthy and get power, regardless of the damage to our system, our Constitution, and worse, to our citizens.
334
@Dadof2,
You are correct, which is why Liz Cheney holds a leadership position among Republicans while Trump is president. The Republican Party has no coherent ideology and exists solely as an organization for unethical people to advance their political initiatives and careers.
129
@Dadof2 - Not so. In the 1990's our trade deficit expanded. By about 1996, the amount of money flowing out of the private sector, indeed, out of the country exceeded the amount flowing in from the federal government.
Except for a brief period in 2003, this outflow continued until 2008, even with the Bush deficits. As in the previous 6 cases when government surplus caused an outflow of money. the shortage of money in the private sector caused private debt to explode, and the banking sector became way overleveraged. Only huge infusions of money from the FED to the banks saved us from another 1929, but it sure wasn't pretty.
The economy under Clinton was far from healthy. It was built on a mountain of private debt.
4
@Len Charlap
Do you not know that the trade deficit and the budget deficit are completely different and unrelated economic measures, with totally different implications? Or that the REPUBLICANS under Reagan, in part to kill the unions, made it HIGHLY profitable for companies to move their manufacturing off-shore (which would, of course, increase the Trade deficit)?
Or are you just another Republican gas-lighting in bad faith, as usual?
23
Most of our representatives are lawyers and former judges, not economists or professionals or teachers. The Crash of 2008 happened under Republicans watch. The only posture they could possibly take is the one they took: We are more responsible than the other party.
I blame us for letting them get away with it. Same with Iraq. Same with … well, just about anything.
15
Dr. K - could you do a follow up to this column explaining how the current deficit spending spree by the President and the GOP is helping prop up the economy? It’s one thing to cut taxes, but going into greater debt means Republicans are using increased deficit spending while the economy is “the best in 50 years!” All that seems like a strategy that will lead to trouble not too long from now.
19
Obama was President for 8 years, during the immediate aftermath of the Great Recession.
He made two mistakes in dealing with the Great Recession:
1. He failed to prosecute the CEO's of the big banks for fraudulent behavior involving complicated derivatives that created the financial crisis.
2. His economic recovery package was too weak. His measures focused on welfare benefits and not jobs for construction workers, which would have helped the US rebuild its failing infrastructure.
Take global warming for example. The US might have developed high speed electric rail which would have enabled the US to be less dependent on autos. Indeed, China has recently constructed 18000 miles of high speed rail, the largest such system in the world. The US has only a planned rail link between LA and SF, but it has been delayed due to lack of funding.
Krugman is right, that Trump has ignored the standard Republican meme that it is important to cut deficits. The deficit has exploded under his watch due to tax breaks for corporations which have helped the wealthy, coupled with cuts to benefits for the poor.
In his tax cuts, Trump has joined Krugman in ignoring the possible danger of high deficits.
In the case of an economic crisis, such as an unexpected war, or a disaster (a hurricane making a direct hit of Miami for example), the high deficits will come back to haunt us.
Deficits DO matter. Excessive debt limit our responses in the case of another financial crisis.
8
@Blaise Descartes, Obama championed the Chevy Volt and California High Speed Rail...his support ended up being counterproductive due to irresponsible Republicans focusing attacks on those initiatives to prevent Obama from getting a “win”.
14
@Blaise Descartes - Er, the federal government can create as much money as it wants out of thin air. It will run out of money the day after the NFL runs out of points.
If you are worried about excessive inflation, note that prices are inversely proportional to production. A bumper wheat crop lowers prices. If the government spends money in ways that facilitates production, we will not get excessive inflation.
3
@Blaise Descartes Blaise Descartes ? you live 2 centuries ?
No you are wrong. There re even American economists who denounce that idea of the deficit.
But If I have to teach you about your own economist that you don't even know the difference with Krugman , then please don't name yourself after 2 eminent advanced French philosophers that you for sure never even read.
1
The lessons really learned? Nope.
Banks, funds etc still gambling with high risk instruments.
We just do not know exactly when they blow up the system again, because what is scaring them is a little bit Trumpian crowd, but that wont prevent totally to their destructive gambling either.
3
Given the massive tax cuts recently enacted, Republicans obviously could not care less about the deficit or the national debt unless Democrats are in control, at which point they become huge issues to worry about. Democrats should drive home the point that we should spend, but we should do so on projects that will benefit the American people (e.g., infrastructure, public education, and green energy alternatives), not on tax cuts for the wealthy, when the wealthy already have more money than they could ever use.
77
@Blue Moon - Let's see if we can understand why tax cuts for the Rich or more generally, income and wealth inequality, is bad for the economy. Economists have a concept called the velocity of money. It is the frequency, how often, that money changes hands in domestic commerce. It tells us how useful the money is.
Here's an example. Suppose the government gives Scrooge McDuck a Billion for advice on the comic book market, If Scrooge puts the bucks in his basement, and forgets about it, that doesn't help the economy at all. That Billion has a velocity of 0. Also, if Scrooge loses a financial bet to Daddy Warbucks,
and the Billion moves from Scrooge's basement to Daddy's, that is a change, but the velocity does not change because it is not a useful change. It doesn't
affect commerce.
Money going to the Rich has a lower velocity than money going to the non-rich. The Rich spend a lower percentage of their money. What's a guy or gal who
already has so many houses he can't remember how many & an elevator for his horse gonna spend his money on? The answer is he is going to use it to
speculate.There is a correlation between inequality & financial speculation. Speculation is bad
for the economy. That money has a very low velocity. AND it increases risk which we have seen in 2008 ain't a good thing.
Since 2007, the velocity of money has plunged. https://fredblog.stlouisfed.org/2016/04/a-plodding-dollar-the-recent-decrease-in-the-velocity-of-money/
62
@Len Charlap
"Let's see if we can understand why tax cuts for the Rich or more generally, income and wealth inequality, is bad for the economy."
It's about the multiplier and accelerator effects with money. And we should not forget the military. Excess money there goes into a black hole, e.g., for a nuclear missile that hopefully will never be used, only decommissioned and destroyed. That missile is even less useful to the economy than an expensive painting or sports car for the very rich.
But Paul Krugman hints at an interesting point. Whenever Democrats regain control, they should just spend, provided that spending is on things that benefit the American public (i.e., not unnecessary tax cuts for the wealthy). Eventually, Republicans will regain control (because politics is cyclical), and at that time they can worry about the deficit and national debt. They can work to clean things up for a change, instead of Democrats constantly having to clean up after the GOP. The shoe will be on the other foot. That's an interesting perspective.
20
@Blue Moon - The multiplier for defense spending is about 0.60, a dollar of defense spending will increase the real GDP by about $0.60. For health care, it is $1.65.
But the criterion for federal spending should be that it facilitates production since adding money to the economy tend to increases prices, but increasing production tends to decrease prices.
Fortunately, the things that benefit the American public, good health care for ALL, free child care and college, etc. are exactly the things that will increase production. Perhaps there is a god after all.
PS Krugman is just beginning to come around to the idea that deficits are necessary to avoid economic disaster. In the past he supported Keynes dictum for "Austerity at the Treasury in the Boom."
8
Laissez faire capitalism fails basic tests of fairness. It unfailingly delivers yawning income and wealth inequality that don't get even partially resolved without wars and revolution. But it is the means of providing fabulous wealth to a few at the cost of crushing poverty to others. The effects of libertarian capitalism are moderated a bit by a government with progressive policies. It isn't surprising that the beneficiaries of libertarian capitalism will try to curb progressive policies by falsely claiming that they hurt economic benefits overall.
20
During the austerity/sequester phase, a friend who had built a successful business over 25 years, lost his business because a government project was cancelled. Of course he blames Obama and the Democrats.
9
The choice by Republicans to oppose any spending that stimulate the economy was purely political, based on doing nothing that could help Obama be reelected. It was a cynical choice, let people suffer and blame Obama for the pain. The austerity in Europe however, was different. It was pushed by Germany and to a less extent France (following Germany's footsteps), based on wrong memories of the hyperinflation in its past and a belief that austerity is good for the soul and imposes necessary discipline on human behavior. It also happened to be good for the German economy, not so much for the rest of Europe and certainly disastrous for Greece.
25
@Serban
I agree with most of this. How I remember those Republican speeches that began "Folks, we're broke!" and went on to bewail the burden we were imposing on our grandchildren by running the deficits that would have relieved the suffering of the unemployed had they been larger. As for the conservative leaders in Europe, they were no better. All of them--Merkel, especially, but also Cameron and Sarkozy--preached austerity, when nary a glance at an economics textbook would have told them that cutting government spending was the last thing you did in the face an oncoming recession. Special dishonorable mention goes to Jean-Claude Trichet, head of the European Bank,who was so obsessed with inflation that he actually raised interest rates in July 2008! And to add insult to injury, this "expert" had the gall to ridicule those who thought less spending might not be a wise move! Looking back on this benighted period, historians will scratch their heads in bewilderment at how so many supposedly competent leaders diagnosed the financial collapse so incorrectly and prescribed precisely the wrong cures.
3
@Serban ...how does Germany, France and UK, etc, still with all their troubles, manage to have universal health care, and low or free college tuition---that we still are fighting about? There are differences among EU countries.
But the US still fights against those benefits as left wing, big govt. There's different kinds of austerity.
EU countries still have more legal limits on mega donor corporate spending for their elections than the US does. Per Wikipedia, many countries ban paid the privately paid campaign ads that are America's biggest election expense, and need rich donors to finance.
That's a kind of austerity that let's the average citizen have some influence on their govt.
2
The people most hurt by austerity are the ones who went running to the party that did it to them, and has been doing it to them again and again and again, over and over.
Trump, the greatest film-flam man in American political history, has taken the mob to a point past rational discussion.
They seem happy there.
We will never be completely rid of them.
Or of Trump.
Or of the ones who brought us here.
We must always remember that.
159
@Ralph Averill
vote republican and live poor
OR doing the same thing repeatedly and expecting a different result is one aspect of insanity - or republicans in charge
1
Austerity is one of several tactics aimed at privatizing profits while socializing costs. Other examples include government contracting to entities such as Boeing, Halliburton, Blackwater, etc. The 737 Max disaster was the culmination of a regime in which businesses were left to “self-regulate” in an environment where they are protected from market forces, since there are so few sellers. Like the banks in 2008, Boeing is too big to fail and will be bailed out by the taxpayers.
110
Paul - contrary to your statement, in a household spending is reciprocated with the goods or services purchased.
1
@Michael
But the goods and services are not (typically) purchased from other members of the household.
6
The fiscal choices made by the 55+ dominated political machine of the past decade have, and will continue to, disproportionately affect the young. Austerity concerning non-senior entitlement programs and apathy towards job creation was a-ok for a career-established Boomer electorate with an entrenched allergy to the idea of paying taxes. Now, with retirement making potential payroll tax increases irrelevant, and the realization that any deficit with necessarily become the burden of the next generation, they're suddenly cavalier towards the same spending and deficit creation they used to vilify. This was never about grappling with pedantic economic theories leading them to be "against" and then "for" having a deficit; it was always about who would ultimately be burdened with re-paying it.
4
@nicole_b You're naive. Until 1965, we boomers had older relatives who could not get health insurance once they turned 65. It wasn't a matter of not being able to afford it - they couldn't get it at all. President Johnson and a Democratic Congress changed that and we were happy. We grew up with the reality that we had to work to pay for these benefits.
The problems began when politicians realized that they might not get elected on a platform to raise taxes, so they kicked the can down the road despite continuing warnings by the nonpartisan budget office. Did I and other boomers worry about the growing entitlement debt? Absolutely - but additional entitlement programs gradually became acceptable, and the deficit and future debt grew. Again, it is easier to get re-elected when you promise to give people something while saying the country can afford it.
Guess what? We are still doing it, and all over the place. What about pension funds that cannot pay out?
12
@nicole_b This administration has increased my taxes by 20% on the same income. Social Security is a progressive program that pays lesser contributors more than greater contributors. The allergy to taxes is from the capitalist class which has taken $7 trillion in wealth (Forbes) from the bottom 90% since the recovery. And they still needed the Trump Tax Fraud Act!
26
To the extent that government bonds have value around the world, a deficit may not matter much. But when a country's financial strength is assessed on its ability to make the bonds good when demanded (pay interest and principal on schedule), the deficit becomes part of the assessment.
Since Trump has become president, our economy and unemployment figures have set records. He embraced the un-Republican process of increasing the deficit by increasing the federal budget, even though liberal commentators have taken him to task about it. Let Trump manage the economy; he is doing a great job.
1
@Locals4Me - The trouble is that the money Trump is adding to the private sector is not useful. See my reply to BlueMoon above. What is happening is that because the people who need money and will spend it are not getting enough, private debt is surging as it did in 1929 and 2008.
26
@Locals4Me
You could do the same with your personal finances. Charge all of your credit cards to their limits. You will certainly be stimulating the economy, and the recipients of your largesse will say you're great. Of course, sooner or later (usually sooner,) the bills will come due.
1
Equally, if not more important, as the fact that "fiscal austerity — slashing government spending in an attempt to balance the budget — is a really bad idea in a depressed economy" Is the fact that "fiscal austerity — slashing government spending in an attempt to balance the budget — is a really bad idea in a booming economy." The 1920's, for example, were a booming economy. If we had not had fiscal austerity then, we would not have had the Great Depression, so there would have been no depressed economy to worry about.
In fact, ALL 6 of our depression have been preceded by a period of fiscal austerity. Here is the historical record:
The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods
since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid
down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
Indeed, EVERY period of fiscal austerity, paying the debt down by 10% or more, has ended with a depression. Krugman cannot seem to bring himself to admit this historical fact as it goes against his Keynesian religion.
Even the crisis of 2008 had a similar cause as for most of 1996- 2008, the current account deficit was larger than the federal deficit so, as in the above 6 cases, money flowed OUT of the private sector net.
9
Let me take a few more characters to further point out the similarities between 1929 and 2008.
From 1919 to 1929 we had federal government budget surpluses. This meant the government taxed more out of the private sector than it spent in. The resulting shortage of money caused people to turn to banks to borrow. Private debt exploded. This put great stress on the banks which as private debt got bigger and bigger, finally crashed in 1929.
In the 1990's our trade deficit expanded. By about 1996, the amount of money flowing out of the private sector, indeed, out of the country exceeded the
amount flowing in from the federal government.
Except for a brief period in 2003, this outflow continued until 2008. Again the shortage of money in the private sector caused private debt to explode, and the banking sector became way overleveraged. Only huge infusions of money from the FED to the banks
saved us from another 1929, but it sure wasn't pretty.
The point is that the private sector needs money to conduct commerce, buy & sell goods & services. This means the gov should spend money so it gets to the people who need it and will use (spend) it, not to the people who do not need it and will use it for financial speculation.
This has not been done for a long time.
7
Deficit obsession among Democrats was also responsible for the inadequate fiscal stimulus proposed in 2009.
Even at the time, it seemed clear that a stimulus well above $1 trillion would be needed to overcome the effects of the massive recession in a reasonable amount of time. As I remember, the Democratic powers-that-be decided they couldn't pass that threshold for increasing the deficit. So the Obama Administration didn't even ask for what was needed, and settled on a poorly targeted, suboptimal stimulus below that magical number.
The result was that things stopped getting worse, but they didn't get better very quickly. By the time of the 2010 election there was a sense that the economy still wasn't improving. That was a major contribution to major Republican electoral victories in 2010 and the problems that we have been facing as a result ever since.
Fifty years ago my young first-year economics professor said: "If you're ever President, make sure to have your recession early and get it over with quickly." The Obama Administration had the first part of that recommendation handed to it, but it failed at the second.
So we shouldn't think that Democrats are immune to deficit obsession. It can be a bipartisan disease.
5
Ir is obvious now that the GOP fanatic concern with deficits was a attempt to put a break on the Obama economy. Once Trump was elected the trashed austerity and any concern with deficits to pump prime the Trump economy. oddly it didn't make much difference. Trump numbers are consistent, not better than the trajectories the Obama economy was on at the end on 2016.
Trumps unemployment numbers are more the effect of favorable demographics than anything Trump did. Job Creation under Trump actually lags job creation under Obama. These number the GOP tells us are the result of Trump's genius are not that different than Obama's, They constantly called Obama handling of the economy incompetent.
Obama's numbers came with a shrinking deficit not the exploding deficit Trump is creating for our children to deal with.
Also Trump promised 3-4 even 6% growth all we got was Obama's numbers for 4 more years and an exploding deficit.
64
Hhmm, if spending money and printing money and giving away money (at next-to-zero interest rates) is good, I say LET'S PILE ON! More, more, more for me, me, me. And with no pain whatsoever. After all, with the brilliance of the Paul Krugmans of the word saying it can be completely painless where more free money, not the production of things and the offering of services, is what creates wealth, then let's go for it.
And what the heck, it we're wrong, it will only be our kids who will have to pay the piper for all our "free"money and debt. And since I have no kids, I don't care.
So, like I say, go for it.
6
@J. Cornelio Your sarcasm is misplaced. To my reading, Prof. Krugman is not arguing that any deficit is good; he is arguing that choking the money supply guarantees that the means of working your way out of a hard time will not be there.
A deficit that enables growth carries its own solution, i.e., the growth solves the deficit issue. Austerity that strangles growth carries its own problem, i.e., the means of growth is cut off.
Another way to consider it: debt for intelligent investment can pay off for the entire economy. Debt to increase incomes for people who can afford to save their windfall will necessarily pay off only for those individuals.
78
@J. Cornelio - The idea that the federal gov has to pay for things, good & bad, with taxes or borrowing is just plain wrong. Its finances are far different from your personal finances.
The gov doesn't need your money. It can (thru the FED) create as much as it needs out of thin air. Just think about where money you pay your taxes with came from in the first place. Unless you have a printing press in your basement, it originally came from the federal gov.
But there's a catch. If the gov needs to create too much money to do the things we want it to do, we may not be able to make enough stuff to soak that money up & will have too much money chasing not enough
stuff, i.e. excessive inflation. This is rare & is usually caused by shortages, e,g, of oil.
But that's easy to solve & where taxes come in. Taxes allow the gov to take back the excess money & prevent inflation. The purpose of taxes is to adjust the amount of money in the private sector. The more we
can produce, the lower taxes can be.
So the way to run things is to spend money to facilitate production. Tax cuts do this, but in an inefficient way. If we cut Daddy Warbuck's
taxes, he does not need to spend the money; he uses it for financial speculation. If we cut poor Joe's taxes, he spends the money on stuff--food, house paint, etc.etc. This promotes production of food, etc.
Even better if we pay Joe to fix a bridge, the money still gets into the economy, AND we get the bridge fixed.
20
@ Len Charlap You are putting together a helpful tutorial here. Thanks for solid info re money velocity and other concepts.
1
"Why is austerity in a depressed economy a bad idea? Because an economy is not like a household, whose income and spending are separate things. In the economy as a whole, my spending is your income and your spending is my income.
What happens if everyone tries to cut spending at the same time, as was the case in the aftermath of the financial crisis? Everyone’s income falls. So to avoid a depression you need to have someone — namely, the government — maintain or, better yet, increase spending while everyone else is cutting."
I believe this very succinctly sums up a lot of "what" is wrong with conservative fiscal policies. As others have and will continue to point out, "why", has nothing to do with being fiscally conservative.
37
These austerity drives result in reduced government spending. This is to prove the conservatives view that the answer is privatizing as many government functions as possible.
That, it is claimed, will lower your taxes. Taxes are the enemy of the conservatives, cutting government they say will give you more freedom. A great many people believe the government is stealing your money to keep all those bureaucrats working. Of course we see what even a bit of cutting one of these agencies leads to. The FAA in order to save money is allowing the aircraft manufactures to substitute their inspectors in place of FAA inspectors. The 737Max is a good example of that line of thinking.
Conservatives want to cut the FDA, FTC, and other agencies that were created due to public demand. Republicans say they are holding the economy back with all their regulations, like clean air and water. They are being led by a con artist with along history of swindling, that is they way they like to do business. Running up the current deficit is a swindled. How long do you think they can get away with it?
155
@David Underwood
The US has generations, present and future, who will not benefit from the public financing of universities. Privatizing education has given them a start in life that is burdened by student loan debt and interest that previous generations didn't face. Schooling is now over 10 times as expensive as it was 30 years ago. Most other industrialized modern economies in the world recognize that investing in education (and thus in their people) will pay dividends that far outweigh any cost savings.
34
@David Underwood They can do it indefinitely given the level of gullibility and ignorance exhibited by a certain significant but small part of the population.
5
With our current deficit, we have little room to maneuver if there is a downturn.
9
@catlover - Since the feeral government (thru the FED) can create as much money as it wants out of thin air, we always have room to maneuver. This is especially true when inflation is low as today.
It is better to avoid downturns by supplying enough money to the private sector, than trying to fix things afterwards.
7
@Len Charlap
How about increasing the revenue that the government collects, by eliminating ALL the deductions and loopholes that plague our system, and actually collecting the tax owed by everyone?
10
@catlover - That might be a good idea for other reasons, but we do not have to do that to raise revenue. The government can just create it,
If the government created too much money for our production to soak up, it can tax some back to avoid excessive inflation, and then your idea would be relevant.
4
Paul Krugman doesn't mention that the Austerity Project was a totally bipartisan affair, what with President Obama himself convening the aptly-named Catfood Commission to cut the deficit as the economy was crashing. Congress did not force him to do this.
Far from ending in 2015, austerity still rules, with the so-called opposition party addressing an epidemic of homelessness, sickness and premature deaths from despair by tinkering around the edges of catastrophe. The House majority grudgingly agreed to control costs for only a handful of outrageously priced drugs while refusing to address the surprise hospital bills being sent out in droves by the private equity vultures who increasingly run our deeply sick health care system.
Last spring, Speaker Pelosi was once again a guest of honor at the late billionaire Pete Peterson's annual austerity conference. Complaining that Trump was taking all the media attention away from the "agenda," she said:
"Pete Peterson was a national hero. He was the personification of the American Dream. I loved him dearly. He cared deeply about working people. He knew that the national debt was a tax on our children. He always said to me, 'Nancy, always keep your eye on the budget!"
And thus does the oligarchy sing same tired old refrain about why people (a/k/a "purists") have to suffer: "But how you gonna pay for that?"
They could start by withholding the trillion-odd dollars they keep gifting Trump every single year for our endless wars.
239
@Karen Garcia - Unfortunately true. This is why I support Bernie since he seems to be the only candidate with economic advisors who understand that the national debt, far from being a tax on our children, is merely an accounting fiction.
This is easily seem by the historical fact that the debt was a much larger proportion of the GDP in 1946. Far from paying high taxes to pay it down, over the next 27 years, the children of the Greatest Generation INCREASED the debt by 75%.
And enjoyed Great Prosperity.
53
@Karen Garcia
And put huge caveats to what Trump can do with money Congress has authorized. That hasn't been attempted even, before and after we learned what it is Trump is doing to tens of thousands of migrants and their children at the border.
Trump shouldn't be able to redirect authorized funds from FEMA, Defense, Foreign Aid, Health & Human Services, Education or any other department to ICE and Border Patrol, but he has been able to and will continue to until he is stopped.
Money makes for dirty politics and the grime has never been as visible as it is now.
61
@Karen Garcia .....you're right---it's bi-partisan in many ways. PK needs to write about that sometime. Dems haven't been as extreme as Repubs, so even mediocre Dems can look like saints.
But Bill Clinton in the '90s cooperated with Repubs to repeal long standing bank regulations that had prevented huge crashes since the big one in 1929. Clinton/GOP gave the green light for the banks to do whatever they wanted. They did.
Now, to propose restoring Glass Steagall bank rules is almost too 'left wing'.
Obama put Wall St biggies in his cabinet, who directed policy to 'foam the runway' for Wall St Recovery.
We all wish Hillary had won, to save us from what we've got now. But she refused to those restore bank regulations her husband repealed.
She got millions in speaking fees from Wall St banks, but she thought it wasn't voters' business to know what she told them.
Krugman doesn't write about mistakes of both parties, only continual columns bashing GOP/Trump---with justification--- but it's hardly enough.
He also lumps all EU countries together negatively, not giving attention to the spending they do on universal health care, and social benefits in the public interest.
PK never explains just how dozens of countries actually finance their decades of health care---which might add to our political discussion and inform voters for 2020.
Guess there's more emotional satisfaction in focusing on how the GOP abuses the country. That's it. But we need better than that.
28
Not taking care to outlaw ageism in all 50 states did great damage.
Not taking care to help homeowners more than they were helped did great damage.
Not taking care to build affordable housing, given the long-term nature of unemployment due to the Great Recession and the greatly reduced wages from the new jobs that have been created since, has deepened the housing crisis for tens of millions of Americans, young and older, and will continue to for the foreseeable future.
Not taking care to regulate what became the gig economy did great damage and will continue to for some time to come.
Not taking care to significantly raise the minimum wage at the national level did great damage and will continue to, even in those states that raised it to $15. Here, in California in 2016, $15 an hour was already inadequate given the housing crisis that existed even then. Today, it is no better.
Not having healthcare, education, and affordable housing as the human right of every citizen is doing permanent damage now and will continue to for as long as unrestrained capitalism is allowed.
It isn't just the legacy of austerity, but also the legacy of triangulation. Centrism, the idea of which is to split the middle with the other side, is killing us. You have to know who you are dealing with. We are dealing with people who won't stop until they are stopped.
This is life under hypercapitalist greed.
649
Regarding minimum wage- increasing it won’t be positive all around. In California, as was mentioned, we have the fifth largest economy and are the largest agricultural producer in the US.
The majority of agricultural workers are immigrants. By increasing minimum wage and overtime payments, farmers are forced to employ FEWER people for LESS time, forcing workers to hop from ranch and farm to make money.
Increased minimum wage means no more $3 strawberries and more stress on workers. Let’s work on affordable housing and other issues, not specifically on minimum wage.
3
@Nic
There are fewer agricultural workers than there are "us" who aren't. Let's find a fair way to compensate them for the exceedingly hard work they do, under very harsh conditions (working and living).
That doesn't change a thing about what it costs to live in California and how little work pays to keep a roof under one's head, gas in an insured car, food in the fridge and student loans paid, not to mention a few of life's pleasures every so often.
It takes 2.5-3 jobs to pay for rent and utilities and not a whole lot more. Bigger paychecks are the only way out, along with building affordable housing, etc. It will be at least two to three years before we start seeing the stock of housing increase. Not one penny of what the legislature approved has been spent and the homeless population is growing.
44
Rima as usual you nail it in your comments. I have come around to the same opinion for awhile now. As citizens, we should have the right to affordable health care, good education opportunities (including affordable and high quality day care) and yes access to affordable housing. I also believe that having a chance to have a job that allows people to live in dignity is also vital and would lead to greater social stability. I am at a point in my life where I am increasingly aware that people who have worked hard all their lives cannot live on the social security benefits that they receive and have to continue to work to survive. And young people cannot find good jobs to allow them to marry and have families. This in the richest country in the world! And just as an aside, senior housing in my city has a five year waiting period. We cannot continue to let all the profits go to those at the top and leave everyone else behind. We understood this in the past but somehow we have forgotten this lesson, and the consequences politically have been dire around the world. Understanding the human right to health care, good education and housing is critical to creating stable societies, where everyone has ownership.
34
Austerity here was a Republican project. The purpose was probably less to cut costs than to reduce the useful budget to make room for preferential tax cuts--the gusher-up approach to negative social engineering.
95