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Krugman writes: "Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression."

Portrait, New York Times columnist Paul Krugman, 06/15/09. (photo: Fred R. Conrad/NYT)
Portrait, New York Times columnist Paul Krugman, 06/15/09. (photo: Fred R. Conrad/NYT)

Europe's Economic Suicide

By Paul Krugman, The New York Times

16 April 12


On Saturday The Times reported on an apparently growing phenomenon in Europe: "suicide by economic crisis," people taking their own lives in despair over unemployment and business failure. It was a heartbreaking story. But I'm sure I wasn't the only reader, especially among economists, wondering if the larger story isn't so much about individuals as about the apparent determination of European leaders to commit economic suicide for the Continent as a whole.

Just a few months ago I was feeling some hope about Europe. You may recall that late last fall Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe's counterpart to the Fed, came to the Continent's rescue. It offered Europe's banks open-ended credit lines as long as they put up the bonds of European governments as collateral; this directly supported the banks and indirectly supported the governments, and put an end to the panic.

The question then was whether this brave and effective action would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place.

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+8 # DurangoKid 2012-04-17 01:01
Krugman just doesn't get it. The 2008 financial crisis punched a gaping hole in the stock of money capital. The 1% demands that hole must be filled. The only way to fill it, and hopefully not destroy the currency, is to bleed the 99%. Or so the 1% would have us believe. From their point of view it makes sense. Each individual capitalist is pursuing his own interests. Unfortunately, capitalism does not well tolerate any consideration of systemic risk. That's an externality. And it's the externalities that will get the 1% in the end. When capital takes the form of money, it inherits money's limitations and risks. Money is a claim on future labor; that claim can be denied. Money is also a promise of value; that promise can be broken. Money is a store of value; that value can decay through inflation. Money is also about people and that makes it political. When the backs of the 99% start to break, the political can and likely will get ugly. That's what happens when the 1% tries to externalize the costs of fraud. Good night and good luck.
+1 # BradFromSalem 2012-04-17 08:28

I call it robbery. And in your description you explain why any inflationary policies will not be followed. Inflation is the best way to decrease the value of what was stolen and increase the value of what was left behind. The opposite effect of what the shortsighted 1% intend.
0 # John Locke 2012-04-18 11:54
Ah w we know who you really are "Edward R Murrow"

A side note here...Common sense tells us that austerity in the midst of a depression, is suicide...yet they, the BANKS are forcing this suicide on the world...I am just wondering since the Banks with their worthless paper currency that has NO value are taking Government IOU's for the "bail out" might they eventually foreclose on the governments and control the world...Just food for thought!
+5 # RMDC 2012-04-17 04:34
Good point -- economic suicide for a whole continent. But I would not call it suicide. I would call it murder. It is the major banks with the European Central Bank as a front which are killing whole nations in Europe -- Greece, Spain, Italy, Ireland, and soon others.

The ECB did not "come to the rescue." I don't see how Krugman could be so wrong on this. The ECB took over bonds that were essentially worthless. Banks should have had to eat those losses. That's what investing is -- sometimes you make money and sometimes you lose. Banks should have taken the losses since they created the economic crisis by selling nations and others fraudulent investments that collapsed economies and thus tax revenues.

The right answer for Greece and others would have been to default on their foreign debts. This probably would have happened in Greece and Italy had a referendums been allowed to take place. The people there would have refused to borrow more money from the ECB. But the presidents who proposed the referendums were summarily thrown out of office by the ECB and European Parliament and ex-Goldman Sachs bankers put in to head the government of Greece and Italy.

I call that "genocide" -- the killing of people. No big banks are being killed or committing suicide. They are being rescued or bailed out. They are being allowed to cash in their bad investments for good money.
+2 # RMDC 2012-04-17 04:43
"use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place."

I wonder what Krugman means by this statement? It could be an endorsement of austerity measures, the cutting of healthcare, pensions, or state spending on human needs. That is the reconsideration of politics that banks are forcing on Europe. Why is this brave?

The right reconsideration of politics would be a total re-regulation of banking and investing. Banks should serve the public interest. They should be run as non-profits. Investments like derivatives should be illegal. Whole nations should return to economies based on production of goods and services. Finance capitalism and neo-liberalism should be so tightly regulated that it simply makes no profit and then it will go away.

When Greece got its first bail out loan from the ECB (really from Germany) it was required to use some of the loan to buy two German made submarines. The contract for the submarines was made before the collapse of the Greek economy and should have been cancelled. But the ECB forced Greece to continue it. This shows where the ECB's priorities stand -- with German capitalists and not with the people of Greece. You can't eat submarines. They are pretty much useless. That's the kind of policy reconsideration s the world needs -- stop buying weapons on credit.
+3 # uglysexy 2012-04-17 06:05
keynesianism doesn't necessarily work if there's no growth to lead us out of the mire. but anti keynesianism doesn't work either. AND europe's problem is our problem as the banks all owe each other unaffordable payoffs on these pernicious credit default swaps if the market goes south on euroean banks
+1 # Innocent Victim 2012-04-17 21:01
Right! Keynesian theory assumes that there is a healthy, productive economy dormant because of lack of consumer demand to stimulate investment. That is not the US situation. We have an economy that is no longer structured for consumer production. Stimulating consumer demand will increase imports of consumer goods and lower the exchange value of the dollar even further. Result: more inflation. What we have now is stagflation. That's what cost Jimmy Carter a second term. Why is Obama still running? He is much worse than Carter. At least Carter has humanitarian instincts. Obama is just a tyrant!
0 # RMDC 2012-04-19 06:21
No Keynesianism does not assume there is a healthy economy. It is designed to work in an economic depressions. Keynes simply argued that government stimulus should go to the demand side -- to individual people who needed jobs and would buy things with the government money/job they got.

The opposite of Keynesianism, neo-liberalism or supply side econocmics, says that government stimulus should to go the biggest corporatios. Neo-liberalism is also finance capitalism. It has nothing to do with human beings and everything to do with capital markets or gambling. The money goes to banks who gamble in the investment markets.

Supply side economics is really not an economic theory. It is just theft of national wealth by the 1%. Gambling on wall street is not investment and has no relation to the economic well being of a nation. It is just a psychopathic addiction to risk and money as an abstraction.
-2 # dick 2012-04-17 07:24
I admire Krugman, but I wish he would follow a key rule of Essays 101: Provide a fair summary of the rationale for the policies you intend to critique. Ex., The key European players say that, ".........", but this is erroneous because........ . After all, the Germans aren't just hopelessly stupid. Furthermore, a fair summary should be provided of the case for dropping the Euro, even if Paul disagrees. Innovative & previously "unthinkable" options should be on the table; WE need to accept that it's a new day. We could start by holding accountable those who caused the CRISIS, not just going back to the status quo ante, but with them even more powerful.
+5 # BradFromSalem 2012-04-17 09:31
How to explain this to a low information person. The type that want to apply Micro Economic solutions (personal finances) to Macro Economics problems.

"A man is starving and is growing weaker every day. His wife takes him to doctor, the doctor tells her to make sure he reduces his intake of food, until he grow stronger. Once he is strong enough to return to work, you can slowly feed him a little more."

That is the austerity solution, while people are starving for jobs; austerity reduces those jobs.
+1 # Innocent Victim 2012-04-17 19:58
Austerity is not solution, but the inflation that is part of the remedy your proverbial doctor offers is no remedy either. It will help to cut back on nourishment, but that's austerity, too!

If her husband finds a job before he dies of starvation, it will be a non-union job and his wages will not keep up with Krugman's inflation. The poor man continues to starve, and what savings he still has buys less.
0 # BradFromSalem 2012-04-18 14:15

I think you are taking the analogy way too far. A typical Liberal/Progres sive error. We get all analytical and dissect every argument. Read my first statement:"How to explain this to a low information person"

My point is that we have to dumb down the talking points in order to compete on the field of ideas. Most folks just want their analysis to be simple, easy to understand and spoon fed. That is why they watch Fox.
0 # Innocent Victim 2012-04-18 17:32
We, on this forum, are capable of some degree of subtlety. Don't be concerned about going over our heads, please! Tell us how a wage earner benefits from inflation.

The unemployed benefit? At this time, though their plight is awful to contemplate, they are far fewer than the number who have jobs and savings. The large number are the ones who will pay for the inflation you advocate.
-5 # Innocent Victim 2012-04-17 12:59
Paul Krugman is an advocate of inflation. It's good for us he tells us. Well what in heck do we have now? Has this member of the 1.5% been to the supermarket lately? Nicely trimmed chicken breasts are $7.25/lb. One cannot buy fruit that has any taste for less than $1.99/lb. Gasoline is about $3.80/gallon. And the banks don't pay us interest on our savings, because the Fed gives them all the money they want. Meanwhile, the Treasury keeps devaluing the exchange value of our dollars, raising prices on imported goods.

Paul Krugman is not a friend of the 99%. He is a suit, just as the banksters are.
-1 # Michael_K 2012-04-17 18:37
The costs you list aren't in any way due to inflation. If you bothered to look at economic reality instead of parroting political economic theory, you'd realise that this is all due to imbecilic trade agreements and compliance costs associated with insane DHS regulations.
-2 # Innocent Victim 2012-04-17 19:18
I don't parrot anything, and your manner is rude but I'll reply to you just to let you know that "imbecillic" and "insane" may mean something to you but they are hardly a refutation of anything I wrote.

I am a democratic socialist, hardly a conservative! That does not mean that I approve of inflation, which is way of stealing from people who have savings. Take from the wealthy not from the savings of hard working people, Mr Krugman!
-1 # Michael_K 2012-04-17 20:47
Once again... "with all due respect".. the costs you attribute to "inflation" are NOT the result of inflation. If stating reality is rude, so be it.
0 # Innocent Victim 2012-04-18 08:29
You are so socially disadvantaged that you don't even know that to tell someone he is parroting something is beyond the pale of acceptable discourse.

If the price of chicken, fruit and gasoline is the result of regulation by the Department of Homeland Security, why don't you explain your bizarre assertion?
-1 # BradFromSalem 2012-04-18 14:22
Inflation will markedly assist in reviving Home sales and at the same time bringing down the debt of millions of individuals. Business will be "forced" to invest because all the money they currently have sitting on the side will be losing value. Investments will generate jobs as well as larger raises. The larger raises will generate greater tax revenue that can be used to generate more jobs and/or reduce the shrinking deficit. Alternatively, we could devalue the dollar, sounds worse, but it accomplishes a similar goose to the economy.
-1 # Innocent Victim 2012-04-18 17:26
Inflation comes with costs, costs to prudent, hard-working people who have fixed pension, annuities, insurance policies, savings. We are not part of the 1%; they are the responsible, productive members of the 99%. Cheap money make it easier for the government to borrow for our imperial wars. It makes commodity prices soar.

Home sales are helped by inflation, true! It was that help that created the bubble for which our economy is now paying. Your approach is to re-create the bubble and another, future burst. Far wiser to let housing prices recover without more inflation than we already have, which is considerable. You write as if we have no inflation now. I suppose you accept the BLS's CPI as a true measure. Do you also believe in the tooth-fairy?

Why should businesses invest in the US to create jobs, when they can and do get far more return by investing in cheap labor countries? You are applying the Keynesian theory as if this was the US pre-1970s. Keynes was right but only within the scope of his assumptions. Those assumptions are not valid in the 21st century to date. No nation has dealt with the problems of its 99% by devaluation.
0 # Michael_K 2012-04-17 13:13
It is a well-establishe d fact that austerity programmes and obsessive deficit reduction are as close to suicide as never mind, when applied to hardly recovering economies. It's a form of insanity touted by right wing pseudo economists, and parroted by know-nothing "conservatives" ... This actually makes me miss the old version of conservatives, like Bill Buckley.. they might be disingenuous now and then, but they were rarely stupid.
0 # Innocent Victim 2012-04-17 20:14
Bill Buckley lover! You even loved his lying, now and then. That's really love!
0 # Innocent Victim 2012-04-17 20:12
The Germans are smart! We can learn much from them. They know inflation; we don't! Inflation and budget cuts are both forms of austerity. Inflation hurts not only people with savings, but it hurts workers as well. Wages always lag inflation. You never get caught up, as a worker.

Prosperity by exporting goods is not mercantilism. Mercantilism is trade for the accumulation of gold or silver. Exporting more than importing does raise the value of a nation's currency, but that tends to restore the balance of trade - which is good.

The US exports arms and financial paper. Tyrants buy the arms, suckers buy the paper. It is not enough to balance our imports, and our currency will continue to decline once the euro has stabilized. US inflation will really take off at that time, and we shall have austerity from both budgetary cuts and inflation.

The American empire is often compared with the Roman, because Rome's declined and ours is declining. But the Roman was successful for hundreds of years! Ours was never successful. It has always cost the American people more than we gained from it in the years since WWII.
-1 # Innocent Victim 2012-04-18 09:01
Paul Krugman, who writes an Op Ed for the NYT, must be pleasing the 1% who run that war-mongering newspaper of selective record. He fits right in with E.J. Dionne and David Brooks.
+1 # Innocent Victim 2012-04-18 18:04
To this point I have not made a positive suggestion. Let me do so! After all, if both inflation and budget butchery will not work, what would be the course to follow? Make structural changes - if you can:

1. Impose high penalties for outsourcing.
2. Return to protectionism, which developed our country in the 19th century.
3. Restore Glass-Steagall.
4. Unburden regulatory agencies of the insane obligation to promote the industries they regulate.
5. Prevent corporations from contributing to candidates or to PACs of any sort.
6. End the national over-investment in armaments and invasions of foreign countries.
7. End the national investment in the nuclear power industry, which is our greatest source of terror.

That would be a good start.

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