Krugman on the Total Failure of Austerity and the Defict Hawks

Romney is now running against Santorum on the claim that he, Romney, is the true Deficit Hawk(tm), while Santorum is just really a Democrat in GOP clothing. I know, it makes no sense, but what coming out of the mouths of any of the GOP candidates has made sense, or been supported by logic and facts and reality, in a long, long time?

And in Washington, the GOP stays on track with its plan to privatize and basically destroy Medicare, all in the name of fiscal austerity. Now one more time, how anything will be saved by replacing the most effective program in the nation’s history, with cost overhead that runs at 5%, with privatized insurance that seniors cannot afford, run by companies that have taken 20 to 50% of all premiums as profits, while denying benefits and refusing to cover pre-exiting costs, still escapes my mind. But then, I still insist on using logic and looking at the facts, not the wet dream of the corporate oligarchy to suck up not just 40% of the nation’s wealth, as they already have, but not to stop until they have it all.

Paul Krugman, you know, the economist with a Nobel Prize for actually doing the reality based research on economics, points out in his latest column the sheer folly of the deficit hawks, and the threat it represents to our nation’s economy.

The bottom line is, austerity does not work. It in fact makes the problem worse. And like it or not, the small stimulus that the Obama administration did manage to introduce at the beginning of his term did have a positive effect. In fact, a bigger stimulus would have had a greater positive effect. Instead, we have a power structure in Washington that simply ignores the historical facts that government intervention and stimulus and programs help the economy. Their every act is rooted in ideology and their own manufactured fantasy reality.

At a time when the nation’s infrastructure is collapsing, and it would take between two and three trillion dollars to fix it, why are we not rebuilding our roads, our railways, our water supplies. Why are we not shifting to non-polluting renewable sources of energy? It seems incredible to have to point out to the corporate oligarchy that the transportation network run by this nation provides them with them means to transport all the goods from coast to coast, via truck or rail, and sometimes even waterways, that makes it possible for business to function. Or will they now take the position that public highways are socialism, and every citizen must build their own part of the road network where it passes by their front door?

The answer is simple. The corporate oligarchy and the 1% have got theirs. And they do not want to share a dime of it with the 99%. And they are blinded by the fact that their concentration of wealth is destroying the very economic engine that helped them build it, the middle class and the consumer engine of this nation.

Worst of all, how can anyone still defend the historically low tax rates that Bush gifted the super-rich with? Under President Eisenhower, the marginal tax rates approached 90%. To suggest that the 1% should not at least be paying their share by letting rates rise back up a few percentage points, while still being in the 35 – 39% range, is just, well, insane.

Insanity. Sheer insanity.

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.

Furthermore, bond markets keep refusing to cooperate. Even austerity’s star pupils, countries that, like Portugal and Ireland, have done everything that was demanded of them, still face sky-high borrowing costs. Why? Because spending cuts have deeply depressed their economies, undermining their tax bases to such an extent that the ratio of debt to G.D.P., the standard indicator of fiscal progress, is getting worse rather than better.

So what will it take to convince the Pain Caucus, the people on both sides of the Atlantic who insist that we can cut our way to prosperity, that they are wrong?

After all, the usual suspects were quick to pronounce the idea of fiscal stimulus dead for all time after President Obama’s efforts failed to produce a quick fall in unemployment — even though many economists warned in advance that the stimulus was too small. Yet as far as I can tell, austerity is still considered responsible and necessary despite its catastrophic failure in practice.

Pain Without Gain. By PAUL KRUGMAN. Published: February 19, 2012


Author: Ron