Economist Paul Krugman argues that governments the world over need to wake up to the fact that they’ve been trying to solve the wrong problem:
A Constant Flow of Bad News for Europe and the US
In the United States, we have zero job growth, with unemployment still at nosebleed levels, according to a recent government report. Meanwhile, the interest rate on 10-year bonds is down to 2.04 percent, and it’s negative on inflation-protected securities. Aren’t you glad we pivoted from jobs to deficits a year and a half ago?
Meanwhile, on the other side of the pond, “Is Austerity Killing Europe’s Recovery?” asks The Washington Post. Howard Schneider, a staff writer who covers international economics, wrote on Sept. 1: “After more than a year of aggressive budget cutting by European governments, an economic slowdown on the continent is confronting policymakers from Madrid to Frankfurt with an uncomfortable question: Have they been addressing the wrong problem?”
Yah think? Too bad there weren’t any prominent economists warning that the obsession with short-term deficits was a terrible mistake; that austerity would undermine hopes of recovery. Oh, wait.
Cant blame Krugman for indulging in a bit of “I told you so”.
The awful thing is that those of us who warned about all this — based not on some unorthodox doctrine, but on basic textbook macroeconomics — weren’t so much argued down as just ignored. Somehow, those with actual power were convinced that fiscal austerity wasn’t just an option but the only option…
Iceland has been very much in the deadlines since 2008. One of the first economies to fall over, the only country where the public successfully rebelled against foreign debt and chose a different path to recovery:
Iceland, the Exception
[In Iceland] the exchange rate has been stabilized, Iceland’s public finances have been put on a sustainable path, and significant progress has been made in rebuilding the financial sector. Policy implementation has been impressive, earning the authorities significant credibility. …
Iceland still has high unemployment and is a long way from a full recovery, but it’s no longer in crisis. It has regained access to international capital markets, and it has done all that with its society intact. And it has done all that with very heterodox policies — debt repudiation, capital controls and currency depreciation. It was as close as you can get to the polar opposite of the gold standard. And it has worked.
Too bad there weren’t any warnings warnings warnings warnings warnings warnings warnings warnings warnings warnings warnings here in NZ that the obsession with short-term deficits was a terrible mistake; that austerity would undermine hopes of recovery. Oh, wait.