Greece, Ireland, Italy, California -Keynes was Right

By Paul Krugman

“The boom, not the slump, is the right time for austerity at the Treasury.”  So declared John Maynard Keynes in 1937. Slashing government spending in a depressed economy depresses the economy further; austerity should wait until a strong recovery is well under way.

Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs, even though our economies had barely begun to recover from the slump that followed the financial crisis. And by acting on that anti-Keynesian belief, they ended up proving Keynes right all over again.

In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom. In Washington, in particular, the failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can’t create jobs. But those of us who did the math realized, right from the beginning, that the Recovery and Reinvestment Act of 2009 (more than a third of which, by the way, took the relatively ineffective form of tax cuts) was much too small given the depth of the slump. And we also predicted the resulting political backlash.

OWS: Paul Krugman says the movement has changed the conversation

The Debt- the Wrong thing to worry about.

The Wrong Worries

By PAUL KRUGMAN N.Y. Times.

In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things.

It’s not just that the threat of a double-dip recession has become very real. It’s now impossible to deny the obvious, which is that we are not now and have never been on the road to recovery.

For two years, officials at the Federal Reserve, international organizations and, sad to say, within the Obama administration have insisted that the economy was on the mend. Every setback was attributed to temporary factors — It’s the Greeks! It’s the tsunami! — that would soon fade away. And the focus of policy turned from jobs and growth to the supposedly urgent issue of deficit reduction.

But the economy wasn’t on the mend.

Hostage taking successful: Republican debt deal makes the economy worse

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

Paul Krugman

N.Y. Times: For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Budget cuts in Portugal and California

The Austerity Delusion

By PAUL KRUGMAN; NYT.

Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.

It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.

It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.

Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.

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This is the same policy being recommended for California by the Republicans. 

 Read the entire column. http://www.nytimes.com/2011/03/25/opinion/25krugman.html

 Read the entire column. http://www.nytimes.com/2011/03/25/opinion/25krugman.html

Republicans make economic crisis worse + Krugman

Things Could Be Worse

By PAUL KRUGMAN

TOKYO. from the N.Y. Times 

“Japan’s problems now are the same as they were in the 1990s, when you were writing about them. It’s depressing.” So declared one economist I spoke to here. “But the Japanese don’t seem all that depressed,” objected another. Both were right — and the conversation crystallized some thoughts I’ve been having about Japan’s situation, and ours.

A decade ago, Japan was a byword for failed economic policies: years after its real estate bubble burst, it was still suffering from chronic deflation and slow growth. Then America had its own bubble, bust and crisis. And these days, Japan’s record doesn’t look that bad to an American eye.

Why not? For all its flaws, Japanese policy limited and contained the damage from a financial bust. And the question in America now is whether we’ll do the same — or whether we will take a hard right turn into economic disaster.

Myths of Austerity: Krugman

By PAUL KRUGMAN

When I was young and naïve, I believed that important people took positions based on careful consideration of the options. Now I know better. Much of what Serious People believe rests on prejudices, not analysis. And these prejudices are subject to fads and fashions.

Which brings me to the subject of today’s column. For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.

This conventional wisdom isn’t based on either evidence or careful analysis. Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite’s imagination — specifically, on belief in what I’ve come to think of as the invisible bond vigilante and the confidence fairy.

Bond vigilantes are investors who pull the plug on governments they perceive as unable or unwilling to pay their debts. Now there’s no question that countries can suffer crises of confidence (see Greece, debt of). But what the advocates of austerity claim is that (a) the bond vigilantes are about to attack America, and (b) spending anything more on stimulus will set them off.

What reason do we have to believe that any of this is true? Yes, America has long-run budget problems, but what we do on stimulus over the next couple of years has almost no bearing on our ability to deal with these long-run problems. As Douglas Elmendorf, the director of the Congressional Budget Office, recently put it, “There is no intrinsic contradiction between providing additional fiscal stimulus today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential.”

deficits and the great recession: Krugman

The nature of America's troubles is easy to state.

We're in the aftermath of a severe financial crisis,

which has led to mass job destruction. The only thing

that's keeping us from sliding into a second Great

Depression is deficit spending. And right now we need

more of that deficit spending because millions of

American lives are being blighted by high unemployment,

and the government should be doing everything it can to

bring unemployment down.

In the long run, however, even the U.S. government has

to pay its way. And the long-run budget outlook was

dire even before the recent surge in the deficit,

mainly because of inexorably rising health care costs.

Looking ahead, we're going to have to find a way to run

smaller, not larger, deficits.

Paul Krugman.

Read the entire essay here: http://www.nytimes.com/2010/01/29/opinion/29krugman.html?ref=opinion

The Great Recession to last years: Krugman

Krugman


SEOUL, South Korea (AP) -- The United States may emerge from recession as early as this summer, though further job losses mean a "depressed economy" could last as long as five years, Nobel Prize-winning economist Paul Krugman said Tuesday.
"I think it's quite possible that industrial production in the United States and perhaps in the world as a whole will bottom out sometime in the next few months, that GDP growth in the United States will be positive in the second half of the year and maybe a little bit later than that in Europe," Krugman told a global financial conference in Seoul.
Krugman said that he would not be surprised if the U.S. recession, which began in December 2007, ended in August or September this year. But job losses were likely to continue into 2011, meaning "the period of a depressed economy" could last until 2013 or 2014, he said.
Krugman, who teaches at Princeton University, won the Nobel Memorial Prize in Economic Sciences last year for his analysis of how economies of scale can affect international trade patterns. He also writes columns for The New York Times.
The U.S. economy, the world's largest, contracted a worse-than-expected 6.1 percent on an annualized basis in the first quarter. Americans increased purchases of cars, furniture and appliances, but businesses cut back spending and exports had their biggest drop in 40 years. The U.S. unemployment rate hit 8.9 percent in April and many economists expect it to reach 10 percent by year's end.
Krugman said that while economic indicators from around the world are improving, they suggest that the pace of economic decline has only slowed.
"I share the optimism that the worst of this may be over," he said, also noting a stabilization in financial markets. "What's really hard, however, is to say when does this go beyond stabilization to an actual recovery."

Obama and economy

Obama v. Krugman


ROBERT KUTTNER | March 28, 2008 | web only The American Prospect.

Barack Obama's speech on the financial crisis was a remarkable breakthrough.
First, he connected all the dots -- between the complete dismantling of financial regulation, the declining economic opportunity and security for ordinary people, the current financial meltdown, and the political influence of Wall Street as the driver of these changes. Astounding! I wish I had written the speech. It is this kind of leadership and truth-telling that is the predicate for the shift in public opinion required to produce legislative change. A radical, appropriately nuanced, and deeply public-minded description of what has occurred, the speech was Roosevelt quality: the president as teacher-in-chief. Those who felt that Obama was capable of real growth that will transcend the campaign's early and somewhat feeble domestic policy proposals should feel vindicated.
The speech also showed real understanding and subtlety in grasping how financial "innovation" had outrun regulation, as well as a historical sense of the abuses of the 1920s repeating themselves. Obama is one of the few mainstream leaders -- Barney Frank is another -- calling for capital requirements to be extended to every category of financial institution that creates credit. This is exactly what's needed to prevent the next meltdown, but if it were put to a vote now, it would be rejected by legislators from both parties because they are still in thrall to market fundamentalism and Wall Street. That's where presidential leadership comes in.
So the speech was courageous, in that it goes well beyond the current Democratic party consensus, and one can only wonder about the reaction of some of Obama's own financial backers. He also took on a couple of other sacred cows, such as electricity and telecom deregulation, proven failures to everyone but industry defenders and their allies in the economics profession.
We should not focus too much attention on the oblique dig at the Clinton presidency, which indeed fomented the pattern of excessive deregulation. Let's remember, Bill was president, she wasn't. This is a totally fair drawing of a distinction on the issues, and not a cheap shot or ad hominem attack.
The Clinton camp's rejoinder -- that Hillary is proposing to do more for the victims of the housing bust -- is totally unpersuasive. All along, she has treated the housing mess as its own self-contained scandal, rather than connecting it to the larger set of financial bubbles of which it is a part. The Frank-Dodd bill, which Obama is co-sponsoring, is a realistic remedy for purely the housing part of the crisis. If you read Clinton's March 24 speech on the housing crisis and how to fix it -- supposedly more robust than Obama's remedy -- she offers the same Frank-Dodd bill. She does not locate the mortgage crisis in the deeper financial one. And her idea of turning, for wise men, to Robert Rubin and Alan Greenspan -- more than anyone the people who gave us this crisis -- is appalling.
The one slightly disappointing part of the Obama speech was his call for $30 billion more in "stimulus." It's not nearly enough. He -- and we -- should stop even using the word "stimulus." To dig out of this mess, at a time when we already have large deficits, the federal government will need to fund a multi-year, public investment-led recovery program well into the hundreds of billions. It will need to be funded by restoring taxes on rich people. But this is a topic for another day.
A real puzzle here is the repeated assertion by columnist Paul Krugman, in the face of mounting evidence to the contrary, that Clinton's views on economic policy are more progressive than Obama's. Indeed, Obama's stunning speech read as if it were informed by recent Krugman columns on the meltdown. Hillary has not said anything close to what Obama (or Krugman) has suggested.
Unlike some of my friends, I have not fallen in love with Obama. I have been at this too long, and you risk getting your heart broken. I actually shared Krugman's critique of Obama's health insurance individual mandate and his proposal to tax the upper middle class to pay for a much exaggerated Social Security shortfall that is more like a rounding error. I simply conclude, based on what I've seen, that Obama is capable of real learning and real transformation, both of himself and of public opinion. Nothing I've seen suggests that's true of Hillary Clinton.
But Krugman, ordinarily an ornament of fair-minded progressive economics commentary, writes almost as if he has become part of the Clinton campaign. His latest characterization of Obama's proposals in commenting on the New York speech -- "cautious and relatively orthodox" -- was preposterous. Even if Krugman's sympathies are with Clinton, he owes it to his readers and to his own credibility to play it straight and credit Obama with a breakthrough when credit is due. This was surely one of those times.
http://www.prospect.org/cs/articles?article=obama_v_krugman

Health care Terror: Krugman

Health Care Terror

By Paul Krugman

New York Times July 9, 2007

These days terrorism is the first refuge of scoundrels.
So when British authorities announced that a ring of
Muslim doctors working for the National Health Service
was behind the recent failed bomb plot, we should have
known what was coming.

"National healthcare: Breeding ground for terror?" read
the on-screen headline, as the Fox News host Neil
Cavuto and the commentator Jerry Bowyer solemnly
discussed how universal health care promotes terrorism.

While this was crass even by the standards of Bush-era
political discourse, Fox was following in a long
tradition. For more than 60 years, the medical-
industrial complex and its political allies have used
scare tactics to prevent America from following its
conscience and making access to health care a right for
all its citizens.

I say conscience, because the health care issue is,
most of all, about morality.

That's what we learn from the overwhelming response to
Michael Moore's "Sicko." Health care reformers should,
by all means, address the anxieties of middle-class
Americans, their growing and justified fear of finding
themselves uninsured or having their insurers deny
coverage when they need it most. But reformers
shouldn't focus only on self-interest. They should also
appeal to Americans' sense of decency and humanity.

What outrages people who see "Sicko" is the sheer
cruelty and injustice of the American health care
system - sick people who can't pay their hospital bills
literally dumped on the sidewalk, a child who dies
because an emergency room that isn't a participant in
her mother's health plan won't treat her, hard-working
Americans driven into humiliating poverty by medical
bills.

"Sicko" is a powerful call to action - but don't count
the defenders of the status quo out. History shows that
they're very good at fending off reform by finding new
ways to scare us.

These scare tactics have often included over-the-top
claims about the dangers of government insurance.
"Sicko" plays part of a recording Ronald Reagan once
made for the American Medical Association, warning that
a proposed program of health insurance for the elderly
- the program now known as Medicare - would lead to
totalitarianism.

Right now, by the way, Medicare - which did enormous
good, without leading to a dictatorship - is being
undermined by privatization.

Mainly, though, the big-money interests with a stake in
the present system want you to believe that universal
health care would lead to a crushing tax burden and
lousy medical care.

Now, every wealthy country except the United States
already has some form of universal care. Citizens of
these countries pay extra taxes as a result - but they
make up for that through savings on insurance premiums
and out-of-pocket medical costs. The overall cost of
health care in countries with universal coverage is
much lower than it is here.

Meanwhile, every available indicator says that in terms
of quality, access to needed care and health outcomes,
the U.S. health care system does worse, not better,
than other advanced countries - even Britain, which
spends only about 40 percent as much per person as we
do.

Yes, Canadians wait longer than insured Americans for
elective surgery. But over all, the average Canadian's
access to health care is as good as that of the average
insured American - and much better than that of
uninsured Americans, many of whom never receive needed
care at all.

And the French manage to provide arguably the best
health care in the world, without significant waiting
lists of any kind. There's a scene in "Sicko" in which
expatriate Americans in Paris praise the French system.
According to the hard data they're not romanticizing.
It really is that good.

All of which raises the question Mr. Moore asks at the
beginning of "Sicko": who are we?

"We have always known that heedless self-interest was
bad morals; we know now that it is bad economics." So
declared F.D.R. in 1937, in words that apply perfectly
to health care today. This isn't one of those cases
where we face painful tradeoffs - here, doing the right
thing is also cost-efficient. Universal health care
would save thousands of American lives each year, while
actually saving money.

So this is a test. The only things standing in the way
of universal health care are the fear-mongering and
influence-buying of interest groups. If we can't
overcome those forces here, there's not much hope for
America's future.

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