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Intro: "Nobel Prize-winning economist Paul Krugman says the current economic problems can be fixed both more easily and more quickly than anyone imagines. But politicians' desire to slash spending is deeply destructive, and he details why austerity is so appealing even to Very Serious People - and why it's such a bad idea."

Paul Krugman believes the US can solve economic problems. (photo: public domain)
Paul Krugman believes the US can solve economic problems. (photo: public domain)



Paul Krugman: Austerity Is So Wrong!

By Paul Krugman, The Daily Beast

08 May 12

 

In a new book, End This Depression Now!, Nobel Prize-winning economist Paul Krugman says the current economic problems can be fixed both more easily and more quickly than anyone imagines. But politicians' desire to slash spending is deeply destructive, and he details why austerity is so appealing even to Very Serious People - and why it's such a bad idea.

n the scary months that followed the fall of Lehman Brothers, just about all major governments agreed that the sudden collapse of private spending had to be offset, and they turned to expansionary fiscal and monetary policy - spending more, taxing less, and printing lots of monetary base - in an effort to limit the damage. In so doing, they were following the advice of standard textbooks; more important, they were following the hard-earned lessons of the Great Depression.

But a funny thing happened in 2010: much of the world's policy elite - the bankers and financial officials who define conventional wisdom - decided to throw out the textbooks and the lessons of history, and declare that down is up. That is, it quite suddenly became the fashion to call for spending cuts, tax hikes, and even higher interest rates even in the face of mass unemployment.

And I do mean suddenly: the dominance of believers in immediate austerity - "Austerians," as the financial analyst Rob Parenteau felicitously dubbed them - was already well established by the spring of 2010, when the Organization for Economic Cooperation and Development released its latest report on the economic outlook. The OECD is a Paris-based think tank funded by a club of advanced-country governments, which is why people sometimes refer to the economically advanced world simply as "the OECD," because membership in the club is more or less synonymous with advanced status. As such, it is of necessity a deeply conventional place, the kind of place where documents are negotiated paragraph by paragraph so as to avoid offending any of the major players.

And what was the advice this bellwether of conventional wisdom gave to America in the spring of 2010, with inflation low, unemployment very high, and the federal government's borrowing costs near a record low? That the U.S. government should immediately move to slash the budget deficit and that the Federal Reserve should raise short-term interest rates dramatically by the end of the year.

Fortunately, U.S. authorities didn't follow that advice. There was some "passive" fiscal tightening as the Obama stimulus faded out, but no wholesale shift to austerity. And the Fed not only kept rates low; it embarked on a program of bond purchases in an attempt to provide more oomph to the weak recovery. In Britain, however, an election placed power in the hands of a Conservative - Liberal Democrat coalition that took the OECD's advice to heart, imposing a program of preemptive spending cuts even though Britain, like America, faced both high unemployment and very low costs of borrowing.

Meanwhile, on the European continent, fiscal austerity became all the rage - and the European Central Bank began raising interest rates in early 2011, despite the deeply depressed state of the euro area economy and the absence of any convincing inflationary threat.

Nor was the OECD alone in demanding monetary and fiscal tightening even in the face of depression. Other international organizations, like the Basel-based Bank for International Settlements (BIS), joined in; so did influential economists like Chicago's Raghuram Rajan and influential business voices like Pimco's Bill Gross. Oh, and in America leading Republicans seized on the various arguments being made for austerity as justifications for their own advocacy of spending cuts and tight money. To be sure, some people and organizations bucked the trend - most notably and gratifyingly, the International Monetary Fund continued to be a voice for what I considered policy sanity. But I think it's fair to say that in 2010 - 11 what I, following the blogger Duncan Black, often call Very Serious People - people who express opinions that are regarded as sound by the influential and respectable - moved very strongly to the view that it was time to tighten, despite the absence of anything resembling full recovery from the financial crisis and its aftermath.

What was behind this sudden shift in policy fashions?

If you try to parse the arguments of the Austerians, you find yourself chasing an elusive moving target. On interest rates, in particular, I often felt as if the advocates of higher rates were playing Calvinball - the game in the comic strip Calvin and Hobbes in which the players are constantly making up new rules. The OECD, the BIS, and various economists and financial types seemed quite sure that interest rates needed to go up, but their explanations of just why they needed to go up kept changing. This changeability in turn suggested that the real motives for demanding tightening had little to do with an objective assessment of the economics. It also means that I can't offer a critique of "the" argument for austerity and higher rates; there were various arguments, not necessarily consistent with one another.

Let's start with the argument that has probably had the most force: fear - specifically, fear that nations that don't turn their backs on stimulus and move to austerity, even in the face of high unemployment, will find themselves confronting debt crises similar to that of Greece.

The Fear Factor

Austerianism didn't spring out of nowhere. Even in the months immediately following the fall of Lehman Brothers, some voices denounced the attempts to rescue major economies by engaging in deficit spending and rolling the printing presses. In the heat of the moment, however, these voices were largely drowned out by those calling for urgent expansionary action.

By late 2009, though, both financial markets and the world economy had stabilized, so that the perceived urgency of action had declined. And then came the Greek crisis, which anti-Keynesians everywhere seized upon as an example of what would happen to the rest of us if we didn't follow the straight and narrow path of fiscal rectitude.

The Greek debt crisis was sui generis even within Europe, that the other debt-crisis countries within the euro area suffered debt crises as a result of the financial crisis, not the other way around. Meanwhile, nations that still have their own currencies have seen no hint of a Greek-style run on their government debt, even when - like the United States, but also Britain and Japan - they too have large debt and deficits.

But none of these observations seemed to matter in the policy debate. As the political scientist Henry Farrell puts it in a study of the rise and fall of Keynesian policies in the crisis, "The collapse of market confidence in Greece was interpreted as a parable of the risks of fiscal profligacy. States which got themselves into serious fiscal difficulties risked collapse in market confidence and perhaps indeed utter ruin."

Indeed, it became all the fashion for respectable people to issue apocalyptic warnings about imminent disaster if we didn't move immediately to cut the deficit. Erskine Bowles, the co-chairman - the Democratic co-chairman! - of a panel that was supposed to deliver a plan for long-term deficit reduction, testified to Congress in March 2011, a few months after the panel failed to reach agreement, and warned about a debt crisis any day now:

This problem is going to happen, like the former chairman of the Fed said or Moody's said, this is a problem we're going to have to face up to. It may be two years, you know, maybe a little less, maybe a little more, but if our bankers over there in Asia begin to believe that we're not going to be solid on our debt, that we're not going to be able to meet our obligations, just stop and think for a minute what happens if they just stop buying our debt.

What happens to interest rates and what happens to the U.S. economy? The markets will absolutely devastate us if we don't step up to this problem. The problem is real, the solutions are painful and we have to act.

His co-chairman, Alan Simpson, then weighed in with an assertion that it would happen in less than two years. Meanwhile, actual investors seemed not at all worried: interest rates on long-term U.S. bonds were low by historical standards as Bowles and Simpson spoke, and proceeded to fall to record lows over the course of 2011.

Three other points are worth mentioning. First, in early 2011 alarmists had a favorite excuse for the apparent contradiction between their dire warnings of imminent catastrophe and the persistence of low interest rates: the Federal Reserve, they claimed, was keeping rates artificially low by buying debt under its program of "quantitative easing." Rates would spike, they said, when that program ended in June. They didn't.

Second, the preachers of imminent debt crisis claimed vindication in August 2011, when Standard & Poor's, the rating agency, downgraded the U.S. government, taking away its AAA status. There were many pronouncements to the effect that "the market has spoken." But it wasn't the market that had spoken; it was just a rating agency - an agency that, like its peers, had given AAA ratings to many financial instruments that eventually turned into toxic waste. And the actual market's reaction to the S&P downgrade was ... nothing. If anything, U.S. borrowing costs went down. This came as no surprise to those economists who had studied Japan's experience: both S&P and its competitor Moody's downgraded Japan in 2002, at a time when the Japanese economy's situation resembled that of the United States in 2011, and nothing at all happened.

Finally, even if one took warnings about a looming debt crisis seriously, it was far from clear that immediate fiscal austerity - spending cuts and tax hikes when the economy was already deeply depressed - would help ward that crisis off. It's one thing to cut spending or raise taxes when the economy is fairly close to full employment, and the central bank is raising rates to head off the risk of inflation. In that situation, spending cuts need not depress the economy, because the central bank can offset their depressing effect by cutting, or at least not raising, interest rates. If the economy is deeply depressed, however, and interest rates are already near zero, spending cuts can't be offset. So they depress the economy further - and this reduces revenues, wiping out at least part of the attempted deficit reduction.

So even if you were worried about a potential loss of confidence, or at any rate worried about the long-term budget picture, economic logic would seem to suggest that austerity should wait - that there should be plans for longer-term cuts in spending and tax hikes, but that these cuts and hikes should not take effect until the economy was stronger.

But the Austerians rejected that logic, insisting that immediate cuts were necessary to restore confidence - and that restored confidence would make those cuts expansionary, not contractionary. This, then, brings us to a second strand of argument: the debate over the output and employment effects of austerity in a depressed economy.

The Confidence Fairy

I opened this essay with remarks by Jean-Claude Trichet, the president of the European Central Bank until the fall of 2011, that encapsulate the remarkably optimistic - and remarkably foolish - doctrine that swept the corridors of power in 2010. This doctrine accepted the idea that the direct effect of slashing government spending is to reduce demand, which would, other things being equal, lead to an economic downturn and higher unemployment. But "confidence," people like Trichet insisted, would more than make up for this direct effect.

Early on, I took to calling this doctrine belief in the "confidence fairy," a coinage that seems to have stuck. But what was this all about? Is it possible that cutting government spending can actually increase demand? Yes, it is. In fact, there are a couple of channels through which spending cuts could in principle lead to higher demand: by reducing interest rates and/or by leading people to expect lower future taxes.

Here's how the interest-rate channel would work: investors, impressed by a government's effort to reduce its budget deficit, would revise down their expectations about future government borrowing and hence about the future level of interest rates. Because long-term interest rates today reflect expectations about future rates, this expectation of lower future borrowing could lead to lower rates right away. And these lower rates could lead to higher investment spending right away.

Alternatively, austerity now might impress consumers: they could look at the government's enthusiasm for cutting and conclude that future taxes wouldn't be as high as they had been expecting. And their belief in a lower tax burden would make them feel richer and spend more, once again right away.

The question, then, wasn't whether it was possible for austerity to actually expand the economy through these channels; it was whether it was at all plausible to believe that favorable effects through either the interest rate or the expected tax channel would offset the direct depressing effect of lower government spending, particularly under current conditions.

To me, and to many other economists, the answer seemed clear: expansionary austerity was highly implausible in general, and especially given the state of the world as it was in 2010 and remains two years later. To repeat, the key point is that to justify statements like that made by Jean-Claude Trichet to La Repubblica, it's not enough for these confidence-related effects to exist; they have to be strong enough to more than offset the direct, depressing effects of austerity right now. That was hard to imagine for the interest-rate channel, given that rates were already very low at the beginning of 2010 (and are even lower at the time of this writing). As for the effects via expected future taxes, how many people do you know who decide how much they can afford to spend this year by trying to estimate what current fiscal decisions will mean for their taxes five or 10 years in the future?

The Work of Depressions

The Austerian desire to slash government spending and reduce deficits even in the face of a depressed economy may be wrongheaded; indeed, my view is that it's deeply destructive. Still, it's not too hard to understand, since sustained deficits can be a real problem. The urge to raise interest rates is harder to understand. In fact, I was quite shocked when the OECD called for rate hikes in May 2010, and it still seems to me to be a remarkable and strange call.

Why raise rates when the economy is deeply depressed and there seems to be little risk of inflation? The explanations keep shifting.

Back in 2010, when the OECD called for big rate increases, it did an odd thing: it contradicted its own economic forecast. That forecast, based on its models, showed low inflation and high unemployment for years to come. But financial markets, which were more optimistic at the time (they changed their mind later), were implicitly predicting some rise in inflation. The predicted inflation rates were still low by historical standards, but the OECD seized on the rise in predicted inflation to justify a call for tighter money.

By spring 2011, a spike in commodity prices had led to a rise in actual inflation, and the European Central Bank cited that rise as a reason to raise interest rates. That may sound reasonable, except for two things. First, it was quite obvious in the data that this was a temporary event driven by events outside of Europe, that there had been little change in underlying inflation, and that the rise in headline inflation was likely to reverse itself in the near future, as indeed it did. Second, the ECB famously overreacted to a temporary, commodity-driven bump in inflation back in 2008, raising interest rates just as the world economy was plunging into recession. Surely it wouldn't make exactly the same mistake just a few years later? But it did.

Why did the ECB act with such wrongheaded determination? The answer, I suspect, is that in the world of finance there was a general dislike of low interest rates that had nothing to do with inflation fears; inflation fears were invoked largely to support this preexisting desire to see interest rates rise.

Why would anyone want to raise rates despite high unemployment and low inflation? Well, there were a few attempts to provide a rationale, but they were confusing at best. For example, Raghuram Rajan of the University of Chicago published an article in the Financial Times under the headline "Bernanke Must End Era of Ultra-low Rates." In it he warned that low rates might lead to "risk-taking and asset price inflation" - an odd thing to be worried about, given the clear and present problem of mass unemployment. But he also wrongly argued that unemployment was not of a kind that could be solved with higher demand.

The bottom line is that the current jobless recovery suggests the US has to undertake deep structural reforms to improve its supply side. The quality of its financial sector, its physical infrastructure, as well as its human capital, all need serious, and politically difficult, upgrades. If this is our goal, it is unwise to try to revive the patterns of demand before the recession, following the same monetary policies that led to disaster.

The idea that interest rates low enough to promote full employment would somehow be an obstacle to economic adjustment seems odd, but it also sounded familiar to those of us who had looked at the flailing of economists trying to come to grips with the Great Depression. In particular, Rajan's discussion closely echoed an infamous passage from Joseph Schumpeter, in which he warned against any remedial policies that might prevent the "work of depressions" from being achieved:

In all cases, not only in the two which we have analyzed, recovery came of itself. There is certainly this much of truth in the talk about the recuperative powers of our industrial system. But this is not all: our analysis leads us to believe that recovery is sound only if it does come of itself. For any revival that is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own that has to be liquidated in turn, thus threatening business with another crisis ahead. Particularly, our story provides a presumption against remedial measures which work through money and credit. For the trouble is fundamentally not with money and credit, and policies of this class are particularly apt to keep up, and add to, maladjustment, and to produce additional trouble in the future.

When I studied economics, claims like Schumpeter's were described as characteristic of the "liquidationist" school, which basically asserted that the suffering that takes place in a depression is good and natural, and that nothing should be done to alleviate it. And liquidationism, we were taught, had been decisively refuted by events. Never mind Keynes; Milton Friedman had crusaded against this kind of thinking.

Yet in 2010 liquidationist arguments no different from those of Schumpeter (or Hayek) suddenly regained prominence. Rajan's writings provide the most explicit statement of the new liquidationism, but I have heard similar arguments from many financial officials. No new evidence or careful reasoning was presented to explain why this doctrine should rise from the dead. Why the sudden appeal?

At this point, I think we have to turn to the question of motivations. Why has Austerian doctrine been so appealing to Very Serious People?

Reasons Why

Early in his masterwork, The General Theory of Employment, Interest, and Money, John Maynard Keynes speculated about why the belief that economies could never suffer from inadequate demand, and that it was therefore wrong for governments ever to seek to increase demand - what he referred to as "Ricardian" economics, after the early-19th-century economist David Ricardo - had dominated respectable opinion for so long. His musings are as sharp and forceful now as when they were written:

The completeness of the Ricardian victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.

Indeed; the part about how the economic doctrine that demands austerity also rationalizes social injustice and cruelty more broadly, and how this recommends it to authority, rings especially true.

We might add an insight from another 20th-century economist, Michal Kalecki, who wrote a penetrating 1943 essay on the importance to business leaders of the appeal to "confidence." As long as there are no routes back to full employment except that of somehow restoring business confidence, he pointed out, business lobbies in effect have veto power over government actions: propose doing anything they dislike, such as raising taxes or enhancing workers' bargaining power, and they can issue dire warnings that this will reduce confidence and plunge the nation into depression. But let monetary and fiscal policy be deployed to fight unemployment, and suddenly business confidence becomes less necessary, and the need to cater to capitalists' concerns is much reduced.

Let me add yet another line of explanation. If you look at what Austerians want - fiscal policy that focuses on deficits rather than on job creation, monetary policy that obsessively fights even the hint of inflation and raises interest rates even in the face of mass unemployment - all of it in effect serves the interests of creditors, of those who lend as opposed to those who borrow and/or work for a living. Lenders want governments to make honoring their debts the highest priority, and they oppose any action on the monetary side that either deprives bankers of returns by keeping rates low or erodes the value of claims through inflation.

Finally, there's the continuing urge to make the economic crisis a morality play, a tale in which a depression is the necessary consequence of prior sins and must not be alleviated. Deficit spending and low interest rates just seem wrong to many people, perhaps especially to central bankers and other financial officials, whose sense of self-worth is bound up with the idea of being the grown-ups who say no.

The trouble is that in the current situation, insisting on perpetuating suffering isn't the grown-up, mature thing to do. It's both childish (judging policy by how it feels, not what it does) and destructive.

 

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+60 # Barbara K 2012-05-08 07:07
This country of OURS cannot be fixed by making her people suffer more. We need a hand up, not a foot down. There are people who have been out of work for far too long because their jobs were shipped out of the country. Let's remember that one, and buy only American all we can. Let's have people from a particular plant that was shut down get together and try for a government loan to re-open a plant somewhere and make the products you know how to make. Make it Worker-Owned & Operated, shut out the big corps and have Profit Sharing. That is just one idea, I'm sure others can come up with more, like using the closed schools to house the homeless, charge what they can afford and use the empty classrooms, with someone in charge and rules to keep it clean and safe., etc.
 
 
+37 # jlohman 2012-05-08 07:28
I like that idea, Barbara, but the politicians are funded by the very Fat Cats that you would exclude. Only public funding of campaigns would allow it.
 
 
+17 # Barbara K 2012-05-08 09:09
j lohman & fredboy: This is something we can collectively do for ourselves. We don't need the politicians or the fat cats. We just need the will and a Small Business loan, or a wealthy benefactor, whatever it takes to start. We cannot sit around and wait for a miracle to happen. We need to band together and make it happen. As many as possible can even start up their own businesses, etc., hey, I'm an optimistic. We just need to get inspired to take it out of their hands, and into our own hands.
 
 
+19 # coberly 2012-05-08 09:03
Barbara

good start, but evenworker owned companies would have to compete with low paid foreign workers unless some kind of wage-arbitrage import tax was imposed.

as for using the schools to house the homeless... why not use the empty houses? you could subsidize the mortgages and people tend to maintain what they own

frankly, i think we see this mass misery because there are powers that like human misery. listen to alan simpson and you'll see what i mean.
 
 
+13 # Barbara K 2012-05-08 10:05
We can start out by selling American made goods to Americans. We know that Whirlpool just closed the plant in Benton Harbor, well the workers who know what they are doing must still be around and looking for work. Rent the buildings, if possible or try for a government grant, or small business loan and start there. Those who worked there could run the plant. Hire a new designer and continue to make appliances with a different brand and sell here in the U.S. Effectively becoming competition for the ones now being made in Mexico, but we do better work here in the U.S. That is just one example. We have talented people all over this country who could band together and make things like that happen. Would need good leadership, but hey, we have them out looking for work too. Say, you are a person who likes to make something Americans need, well, go for it! Start small and make it worker owned and operated, there are plenty of empty buildings for sale or rent. If you have a special family recipe for something that the Americans would love, start mass producing it (like a BBQ sauce, a relish, a purse, whatever) Make all businesses worker owned and operated and yes Unionize if so desired. We already have all the workers and brains needed to do this. Start one town or city at a time and sell all products right here to other Americans.
 
 
+16 # pbbrodie 2012-05-08 10:04
Barbara K, this and your following ideas are all great but you surely know that the screams of socialism will surely follow and quickly bury anything you might try to accomplish. The first thing that needs to be done is to educate people to the fact that socialism is something that is good for the 99% and the reason they have been convinced otherwise is because it isn't good for the top 1%. People need to understand what the word actually means and where it comes from. Socialism is what is good for our Society!
 
 
+11 # Barbara K 2012-05-08 10:34
pbbrodie: Who cares what anyone calls us? They will soon be calling us workers and businesses. It would be hard work to start up, but hey, what else are we doing? It's not like we wouldn't have the time. Even the Mobile Home manufacturers that are closed down, could be re-started by the people who were once employed and know how to build them, and start them to producing here in the USA again. If you are a group of people who are all from the same area that worked at a place that outsourced your job, get together and make up a business plan, get good managers to get started up again, with new designs and brands and sell to Americans, that would save on shipping costs. If in a few years you have a great business going and want to, you can sell overseas, etc., but for now stick with helping each other right here in America. There are a lot of small empty buildings for starters, and add on or buy or rent more space if needed in the future. This country started from scratch once and we can do it again. We have a great number of people needing the work and we all want to buy American-made products. So lets just start building again.
 
 
+2 # palkab01 2012-05-09 04:31
Exactly, who cares what anyone calls us. We should be in the business of rebuilding this country. Business by business. How about rebuilding the infrastructure in bad need of repair. Maybe think about boycotting Apple products until they start to make their products in this country. I realize they do employ many tech's in their stores, but providing more work opportunities in this country would be significant. That goes for the many other US industries that make their products in foreign countries and provide their citizens with employement
 
 
-3 # pbbrodie 2012-05-09 12:32
You should care what "everyone" call us and respond. The reason is because as soon as you are labeled as something the vast majority of Americans have been taught is bad, you will quickly fail at whatever you are attempting to do. For one thing, once you are thus labeled, no one will join you. If you don't believe this, you are either extremely naive, blind blind or both. The first and foremost thing that has to be done is to educate the people to understand what is wrong and why and then you can accomplish all of the things you suggest but not until then.
 
 
+1 # Charles3000 2012-05-09 00:57
Speaking of worker owned plants, google "Mondragon economic model" and see what has been done and what actually works.
 
 
+23 # fredboy 2012-05-08 08:18
America now ranges from the pathetic to the hilarious. Here we have 350 million people mostly sitting on their collective asses, afraid to take the next step. It's as if our series of economic ass-whippings have robbed us of all trust and faith in the process. And, since the 9/11 failures and resulting tightening down on our freedoms, most seem afraid to speak up. I don't think we can generate a positive, prosperous society by cowering in our closets.
 
 
+2 # Noni77 2012-05-08 08:52
See Cloward-Piven strategy... this supports that objective.
 
 
+17 # coberly 2012-05-08 08:59
well, i like Krugman, and I hope this essay is widely read.. hopefully by people who can do something about it.

but i will object that raising taxes may not be a bad thing in THIS depression. this depression was caused in part by a "tax cuts for all reasons" government policy over many years.

cutting the taxes of those people who have a lot of money they are not spending will not stimulate the economy.

government jobs will.... even if they are paid for by taxing that idle money.

and it is especially insane to destroy Social Security by refusing the raise the payroll tax one half of one tenth of one percent per year... about forty cents per week for the average worker today.
 
 
+1 # Bodiotoo 2012-05-08 11:16
Coberly,
I believe the government's place is to maintain a fair palying field and help the population as needed...and yet I do not like the growth of government bureacracies. I also do not think that governemnt jobs should be "career positions" What could be done?
Suggestion, I think that could help...all able bodied workers putting in for umemployment get entry level positions, maxed at 24 hours at twice(again maximum benfit is limited) the current minmum wage...they continue to pay FICA, but are making too little to pay taxes...and they 4 days a week to go find a real career. Takes "unemployment" off the table, government dollars get some public return...in labor...
Make fica taxes be paid on all income, there by insuring the program, and add a means test for those who collect benefits...it is a saftey net.
Raise taxes on all in a re-defined graduated tax system, exempting the first $30K for all...except fica is required...some ideas...crazy? Maybe!
 
 
+21 # Peacedragon 2012-05-08 09:02
"Worker owned and operated," I love it. Enough of that and the fat cats will have to come to the workers for their bowl of milk.
 
 
-29 # James Marcus 2012-05-08 09:10
One definition of Insanity: repetitive doing of what did not work, in the first place...over and over.
More spending, of what you don't have, (called borrowing without Good Credit, which is without the possibility of repayment) is Immoral, illegal, and insane.
Insane action, contrary to the belief of Economic 'Wizards', does not lead to 'Sane' results.
 
 
+8 # reiverpacific 2012-05-08 10:42
Quoting James Marcus:
One definition of Insanity: repetitive doing of what did not work, in the first place...over and over.
More spending, of what you don't have, (called borrowing without Good Credit, which is without the possibility of repayment) is Immoral, illegal, and insane.
Insane action, contrary to the belief of Economic 'Wizards', does not lead to 'Sane' results.

"Immoral, Illegal and Insane" is so easy to trot out and aim at anybody but the perpe-traitors (spelling deliberate!) who marketed just that; -easy-credit to gullible, poor-to-middle strata, stoned on wall-to-wall commercialism, content-free infotainment continuously blasted at them by "easy-money-pro perties-and-toy s" confidence-tric ksters-in-suits who were bailed out at THEIR OWN expense and now are voraciously white-knuckling on to their community-wasti ng, capital-buildin g offshore-hiding private fortunes gained the old-fashioned way -by stealing it!
And that includes their lobbyist-funnel ed, bought and paid for "representative s (of the 1%)" on both sides of the aisle.
Let's dump the real stinky-shit blame where it originated -and hurl it aback at them a thousand-fold.
 
 
+12 # JetpackAngel 2012-05-08 10:51
I thought the definition of 'insanity' was doing the same thing over and over (London, Greece, Spain) and expecting a different result.

Whatever happened to that basic tenet of business that I've known since childhood: "You have to spend money to make money." Did nobody else learn that? You're not going to be able to paddle the canoe out of shit creek if you've sold the oars and keep drilling holes in the bottom to 'lighten the load.'
 
 
0 # reiverpacific 2012-05-11 16:50
Quoting JetpackAngel:
I thought the definition of 'insanity' was doing the same thing over and over (London, Greece, Spain) and expecting a different result.

Whatever happened to that basic tenet of business that I've known since childhood: "You have to spend money to make money." Did nobody else learn that? You're not going to be able to paddle the canoe out of shit creek if you've sold the oars and keep drilling holes in the bottom to 'lighten the load.'

"London, Greece Spain"?????
What country is "London" all by itself pray???? Did somebody cast it off, sail it down the Thames and anchor it in the middle of the North Sea?
I know that the US no longer teaches Geography but this is ridiculous!
 
 
+17 # miltlau 2012-05-08 09:11
Paul Krugman's arguments are sound. Unemployment reflects a lack of demand. Thus he recommends economic stimulus. Under our present tax structure, that requires deficit spending, which scares both Very Serious People and many men in the street. Moreover, while Mr. Krugman ays that we can deal with the deficit after the stimulus has got the economy going again, it is not clear that that would happen.
Say's Law says the production creates its own demand. That may be true if the money spent in making things goes to people who spend it. However, with about $3 trillion going to people too rich too span it, and instead investing abroad and buying old art, demand for what workers produce is affected. Add to that the money spent abroad be the U.S military. Under these circumstances, it is doubtful that full employment can ever be sustained without continuing deficits.

The obvious solution is to increase taxes on the super-rich and rein in the foreign military expenditures,. But especially without people like Paul Krugman advocating steeply graduated income taxes, it will never happen and the fears of Very Serious People will turn out to be well founded.
 
 
+17 # fredboy 2012-05-08 09:13
By the way, the MBA schools dropped the term "human resources" long ago, and now refer to workers as "human capital." At the school I left a student said "Employees are nothing but expendable human capital. We owe them nothing. We just learned that in our economics class." That's the new view of the workplace. And remember, the greed factories are spewing many thousand MBAs each year, each taking such thinking into the "new" workplace.
 
 
+25 # irvingwood 2012-05-08 09:17
My favourite Sorcerer's Apprentice is David Stockman, Reagan's Budget Director. He once said, in a moment of candor, ""None of us really understands what's going on with all these numbers."

Reagan..the most destructive President America has ever seen. You wouldn't believe how many Americans believe he was a "great president". the man was barely compos mentis. But "he's our President so he must be telling the truth". Is anyone surprised that 82% of Americans believe that Iran has nuclear weapons? So much ignorance and gullibility in the most powerful nation in the world is frightening.
 
 
+24 # ewokky 2012-05-08 09:18
The problem with Austerians is their austerity is fake. You can tell since every spending cut proposal is coupled with additional tax cuts for the wealthy. If fiscal responsibility was really the goal, the better path to a balanced budget is a combination of cuts and revenue increases. But this is not the goal.

Look who is doing well in this environment and who is not. The whole austerity movement is a coordinated effort to continue the concentration of wealth and power to a few. This is done in large part by marginalizing the working class. Multi-national corporations are complicit in their lust for cheap labor. Marginalizing the working class depresses wages.

What we need is a rebirth of working class organization. What we really need are true multi-national unions as a counter agent to multi-national corporations and those who wish to marginalize those who depend on work for a living. You can see it and feel it trying to happen. In OWS and the recent Euro elections. If the working class ever coalesces internationally , watch out Austerians....
 
 
+16 # Texan 4 Peace 2012-05-08 09:24
Krugman nails it once again. Any social theory that presents social injustice and mass suffering as "natural" and inevitable is of course attractive to the small minority that benefits from said injustice. It begs the question posed by Barbara Ehrenreich: What is the economy FOR, anyway? (fattening a small cabal of capitalists, or providing employment and basic necessities to the broader population?)
 
 
+11 # jwb110 2012-05-08 09:33
All the real austerity should be happening in the Financial Sector.
 
 
-15 # Martintfre 2012-05-08 10:20
//In so doing, they were following the advice of standard textbooks; more important, they were following the hard-earned lessons of the Great Depression.//

Which is exactly why a recession became a great depression.
 
 
+6 # cordleycoit 2012-05-08 10:22
Krugman has the one solution that will save capitalism. This will work which will end the current drift towards a Malaysian fascist state which is so attractive to likes of Beck and his corporate masters. Krugman pulls the rabbit from his liberal hat.Save capitalism and our grandchildren will find themselves at this moment of collapsing capital. We could move on and try some of the replacements for the failure of capitalism. My bet is we fail and doom the future to suffering under the heel of the Corporate Capitalist State.
 
 
-13 # RICHARDKANEpa 2012-05-08 10:32
More important to how much Paul Krugman is right and how Ron Paul is right is that they are both thinking about and discussing the possible solutions.

Not Romney's and Obama's sound bites ie Obama is lying about going to create jobs because he hasn't created many, vs Romney must be lying because he is rich and represents them,

http://readersupportednews.org/pm-section/77-77/11309-ron-paul-has-done-more-for-peace-than-people-who-dedicated-their-entire-lives-working-for-it
 
 
+13 # walthe310 2012-05-08 10:44
Long live austerity.
In french, vive austérité . The French and the Greeks rejected continued austerity in sunday's elections. Francois Hollande will replace Nicolas Sarkozy as President of France. We don't know yet who will govern in Greece. Even in Germany, the hotbed of austerity in Europe, austerity was defeated in a local election.

Here in the US, the supporters of austerity are Mitt Romney and Paul Ryan. We don't want to adopt the failed policy of austerity for four more years. The GOP-slowed recovery from the Great Recession during the past 3.5 years has been bad enough without making the situation worse by electing Mitt.
 
 
+9 # paddyrican 2012-05-08 11:50
Paul: When are you going to comment on the $16 TRILLION dispursed by the FRB to both U.S.&foreign banks between 2007&2010 sa outlined in the GAO audit report released in July,2100. Was this a "loan" and,if so, how much has been repaid to date? Would our present economy have beeen better served if the money was simply applied to cover deliquent home mortgages,credi t cards &student loans. What did the banks DO with this money? Cover their derevatives positons? Cover their CDO obligations? SOMEBODY in the MSM should be covering this and getting answers!!!!
 
 
+5 # Barbara K 2012-05-08 12:12
paddyrican: I heard of this a few years ago, it was done by Bush immediately after Obama won the election, so the money was gone before he even took office. I think it was done, politically motivated, so there would be nothing for Obama to work with. Bush & his cronies didn't care what it was going to do to the citizens.
 
 
+2 # bluepilgrim 2012-05-08 12:05
"Why would anyone want to raise rates despite high unemployment and low inflation? Well, there were a few attempts to provide a rationale, but they were confusing at best."

Here's one that is not confusing.
I've filthy rich, having been ripping off the workers for years, and now I need a place to put all that money that is secure and pays well. T-bills -- I just need to get the rates up more. Make some phone calls...
 
 
+8 # Dangoodbar 2012-05-08 12:13
In proper frame of reference that Krugman and all other honest economists would agree on in discussing terms like Capitalism is Adam Smith’s “Wealth of Nations”. Using “Wealth of Nations” as a frame of reference what is obvious is that Krugman is in fact the Capitalist in the discussion and those supporting austerity are something else.

We live in a consumer economy. This means it is important for the nation’s economic health that people have the ability to consume/spend. Furthermore, as Krugman points out, this has been true since the start of Capitalism and obvious since the great depression.

The limit on economic health through consumption is not debt but resources. But the current economic slowdown is not caused by limits in resources so it is not at issue. Rather, as Krugman points out the current economic slowdown is caused by lack of consumption.

This all begs the question: why do people in a democratic society continue to support bad economic policies that actually hurt them when such and obvious better choice is available for not only themselves but their nation.

I mean 99% of the people benefit from Krugman's idea and 1% benefit from the austerity approach. That 99% benefit from Krugman's approach is a fact that by itself not only shows which approach is better, but which approach should be by far more popular.
 
 
+8 # Dangoodbar 2012-05-08 12:13
As with all complex questions where you have hundreds of millions of people making decisions, there are many answers. So what are some of the answers that affect the most people voting for bad economic policy that harms them?

At least one of the major reasons is the boogie man of Socialism. But in fact if anyone bothered to read "Wealth of Nations" they would realize that Socialism and Capitalism are not mutually exclusive. That is some things, like public schools, are important in both Capitalism and Socialism.

What is mutually exclusive from Capitalism is Feudalism or that which Capitalism replaced. Feudalism is where you have a few super rich and everyone else owing or depending on those super rich for crumbs off their tables.

I am a Capitalist to the bone. I believe and practice Capitalism. As such I realize that a strong consumer or middle class is absolutely necessary to my survival. However, I must say that many I meet while practicing Capitalism are really Feudalists. But they don’t dare say it.

Rather, Feudalism is sold to the public as Capitalism. In addition necessary aspects of Capitalism that ensure a strong middle class are being sold to the public as socialism.
 
 
+5 # fbacher 2012-05-08 13:17
Stimulating an economy has risks like stimulating a sick person with drugs. But the treatment is appropriate under certain conditions. These Austerians want to prescribe leaches and blood letting to an anemic economy.
 
 
0 # BVA 2012-05-12 13:28
Yes!

Following a similar line of thought the Austerians, such as Senator Coburn, M.D., want to put the patient in a rehabilitation program [debt management] BEFORE or INSTEAD OF dealing with the patient's main problem (loss of blood [consumer demand]), or even before stabilizing the patient's condition (such as figuratively resetting a bunch of broken bones and/or curing the anemia from the loss of blood and bone marrow function impairment, depending on how far you want to take this metaphor).
 
 
+5 # grandpadavid 2012-05-08 13:52
Krugman makes a devastating argument for Stimulus in the greatest amount possible.The AUsterians will undoubtedly agree, Right? Yes? Oh! Why not? is it because the 1% have a different agenda? The good of the country is not their goal. We might as well face it. Being patriots is not their thing. Making money is the most important activity in their lives...and that included their lackeys, the senators and congresspersons who spout their propaganda. We do need a better way of electing our representatives .
 
 
+4 # JCM 2012-05-08 15:46
One of the best programs we can do for this country is to raise the taxes for the very wealthiest. Trillions of dollars have been collected by the very wealthiest since the 1980's. Tax rates were lowered that benefited mostly the very wealthy. After thirty years of this our country can no longer sustain the greatness it once was. After WW2 we had very high tax rates targeted at the very wealthy in order to pay off the war time debt crisis. We are in a crisis now and need to look at history and find the most beneficial rates for our nation. We don’t have a spending problem, spending is at an all time low relative to GNP, we have a revenue problem.
 
 
+1 # Bonz 2012-05-09 03:55
I think the interesting question is the "morality" issue. Krugman states that both sides of this argument arise from a "Morality" issues. Both are about doing what is responsible. The question is how do we speak to the moralities of the opposing parties and make a difference? The reasons given, on both sides, to back up moral bekiefs change, nd in stalemate and ultimately fail in arguing issues They are only justifications for our moral beliefs, (The Righteous Mind: Why Good Peope Are Divided by Politics and Religion, Jonathan Haidt.) My question is how does one speak to one's morality rather than arguing the issues, which hasn't and doesn't change anyone's thinking and hasn't worked?
 
 
+1 # fredboy 2012-05-09 06:06
Land of the free, home of the terrified.
 
 
0 # robbeygay 2012-05-09 17:35
No Paul's wrong :-
Stop helping Capoital with higher interest rewards, lower borrowing by increasing bank reserve capital etc.
Cut spending yes:- by stop interfering in World disputes, let them sinkin their own errors. Stop War spending and let defence industry manage their own problems.
Increase jobs by infrastructure R&M or upgrade eg fast rail.
Lower export product cost, by lower capital share and lower borrowings.
Let this Gen pay not your grandchildren, cut your own cloth to measure.
Building war machines to gift to other nations and call US-AID whgilst giving them more facility to make strife elsewhere.
Don't baikl banks let shareholders as in other industries returfn their excess earnings in the form of bankruptcy loss of CAPITSAL

Just give Labor a fair chance to catch up, rather than higher rewards and benefits to appease useless Union bosses who like all CEO's get bonus for ripping public off better vthan predecessors did.

Balance and think the two remedies that Depression must now teach because boomers forget 1929-37.
 
 
-4 # carioca 2012-05-09 22:03
Austerity isn't wrong, nor is government stimulus. Both of them are neither wrong nor write. What is at the heart of the matter is growth, the limits thereof, and increasing wealth around the globe as more and more people clamor for the same, limited resources, and increasing desparity around the globe as more and more people refuse to give up their relatively opulent lifestyles from the day before.

It's a problem with 7 billion manifistations, and not quite that many solutions.
 
 
0 # BVA 2012-05-11 18:49
Austerity is an elite program (unfathomable by the common person), it has the old-tyme virtues of caster-oil and walking 2 miles to school (uphill both ways), and it has long intellectual pedigree (that old-tyme economist flavor), that justifies any social injustice as necessary to progress ('no pain, no gain'). It is also a 'natural' process (just like Mother Nature herself), so it should not be messed with (just go with the flow, or lack of), and it justifies all of the greed of those primary, 'Ayn-Randian' agents of progress, individual big-time capitalists (and CEOs).

And 'confidence' is just, well, a 'confidence game' to hoodwink the legislators and voters. That all this austerity leads to serving the interests of the big lenders and creditors is just another lucky break for the banks, etc. Since we all want to feel morally worthy, and since this 'depression' was the fault of those home buyers who let themselves get snookered into getting an adjustable-rate mortgage, or who were just not far-sighted enough to see that a 'depression' was just around the corner, it's just common sense that the 'grown-ups' need to enforce the unofficial U.S. moral code by assessing the penalty of a long 'depression' (in football terms a 100 yard penalty). And 'doggone it' deficit spending and low interest rates are just plain immoral, even socialistic. And don't get me started on inflation.

I think I've got it, Paul. Thanks! Very enlightening!
 
 
0 # BVA 2012-05-12 14:54
Austerity is an elite program (unfathomable to the common person), it has the old-tyme virtues of caster-oil and walking 2 miles to school (uphill both ways), and it has long intellectual pedigree (that old-tyme economist flavor), that justifies any social injustice as necessary to progress ('no pain, no gain'). It is also a 'natural' process (just like Mother Nature herself), so it should not be messed with (just go with the flow, or lack of), and it justifies all of the greed of those primary, 'Ayn-Randian' agents of progress, individual big-time capitalists (and CEOs).

And 'confidence' is just, well, a 'confidence game' to hoodwink the legislators and voters. That all this austerity leads to serving the interests of the big lenders and creditors is just another lucky break for the banks, etc. Since we all want to feel morally worthy, and since this 'depression' was the fault of those home buyers who let themselves get snookered into getting an adjustable-rate mortgage, or who were just not far-sighted enough to see that a 'depression' was just around the corner, it's just common sense that the 'grown-ups' need to enforce the unofficial U.S. moral code by assessing the penalty of a long 'depression' (in football terms a 100 yard penalty). And 'doggone it' deficit spending and low interest rates are just plain immoral, even socialistic. And don't get me started on inflation.

I think I've got it, Paul. Thanks! Very enlightening!
 

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