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Intro: "For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine."

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)

Death of a Fairy Tale

By Paul Krugman, The New York Times

27 April 12

This was the month the confidence fairy died.

For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should - by spending more to offset falling private demand - but with fiscal austerity, slashing spending in an effort to balance their budgets.

Critics warned from the beginning that austerity in the face of depression would only make that depression worse. But the “austerians” insisted that the reverse would happen. Why? Confidence! “Confidence-inspiring policies will foster and not hamper economic recovery,” declared Jean-Claude Trichet, the former president of the European Central Bank — a claim echoed by Republicans in Congress here. Or as I put it way back when, the idea was that the confidence fairy would come in and reward policy makers for their fiscal virtue.

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+52 # AMLLLLL 2012-04-27 09:01
Thanks Paul, I hope some 1%ers read this, although they are not all job creators. We are the job creators, since we create demand.

Every time I hear the trickle down theory spewed out I think, "What evidence can you point to to back that up?"
+51 # AndreM5 2012-04-27 09:23
What, you have a problem with faith-based economics?
+5 # Lolanne 2012-04-28 09:49
Quoting AMLLLLL:
Every time I hear the trickle down theory spewed out I think, "What evidence can you point to to back that up?"

Every time I hear it spewed out I darn near "spew out" myself. If it's ever mentioned by anyone I'm face to face with, they'll wind up with spew all over their shoes!
+33 # jlohman 2012-04-27 09:09
THE problem is political corruption, politicians giving away the store to the Fat Cats that fund their election. UNTIL the people get off of the little fires and onto the root issue of a corrupt board of directors, live with it!
+42 # AndreM5 2012-04-27 09:31
I agree. This is not an ideological battle at all. It is simply Shock-Doctrine theft. In time of chaos they can steal.
+17 # jlohman 2012-04-27 09:49
Yea, it is "diversion," and it is working. Simultaneously they have their hand in our pocket. We need a 100% turnover in November, R's and D's alike.
-3 # Livemike 2012-05-01 01:35
No the problem is people believing people like Paul Krugman, despite his consistently being wrong for as long as anyone can remember. He even misdiagnoses the problem that austerity is supposed to solve. It's not depressed economies, but economies with massive government debt that people say need austerity. Of course admitting this would lead to admitting who's advice lead to such problems.
+17 # Vern Radul 2012-04-27 10:34
Death of a Fairy Tale, indeed...

China has thousands of kilometers of high speed rail, we do not have one inch. Denmark has had off shore wind generating electricity since the early 1990s, generates 20% of its electricity that way, and will soon be up to 50%. We have no off shore wind. We are not even maintaining our roads and bridges. The first step for both democrats and republicans is to step out of the imaginary world they are living in and take a hard look at reality. It is no longer 1945.

Goldman now expects the BRICS countries to account for almost 40% of global gross domestic product (GDP) by 2050, and to include four of the world’s top five economies.
The multitrillion-d ollar global question remains: Is the emergence of BRICS a signal that we have truly entered a new multipolar world?

Yale’s canny historian Paul Kennedy (of “imperial overstretch” fame) is convinced that we either are about to cross or have already crossed a “historical watershed” taking us far beyond the post-Cold War unipolar world of “the sole superpower.” There are, argues Kennedy, four main reasons for that: the slow erosion of the U.S. dollar (formerly 85% of global reserves, now less than 60%), the “paralysis of the European project,” Asia rising (the end of 500 years of Western hegemony), and the decrepitude of the United Nations.
-29 # LonnyEachus 2012-04-27 12:01
"China has thousands of kilometers of high speed rail..."

Much of it unused & decaying, and of the used part: one train recently derailed.

"Denmark has had off shore wind generating electricity..."

A vastly larger % of Denmark is coastline compared to U.S.; it makes more sense for them to spend on wind.

"We are not even maintaining our roads and bridges."

True. Where does the money go instead? Oh, yeah: unjustifiable, undeclared wars, bailing out huge corp.s, etc.

"... slow erosion of the U.S. dollar ..."

What is the cause? There MUST be one.

"... the 'paralysis of the European project'..."

There must be a reason. You think government economic policy MIGHT have something to do with both?

This has gone on a long time, not a few years. Krugman's idea it is due to a year or two of "austerity" is ridiculous. U.S. gov. spent more last year than ever. The trend has been ever upward.

Krugman's smarmy "austerians" comment -- we know exactly who he means -- could not possibly be the problem because "austerian" policies have not actually been practiced.

Again Krugman's analyses fail to reflect reality, according to actual numbers you can find in the daily paper. The guy's a political hack, not an economist.

(I am doubly amused to find that I have been marked down for telling easily verifiable truths. That in itself is very informative.)
+19 # Texas Aggie 2012-04-27 15:02
At the risk of being rude, allow me to point out the errors in your post:

While Denmark has a RELATIVELY longer coast line than the US, the US has a lot more coastline and zero in off shore wind electricity generation.

It's true enough that money hasn't gone to where it should instead of wars and the pockets of the Rmoney types.

The biggest mistake is to claim that we haven't been practicing austerity. I give you TX as Exhibit A where 10% of its education budget has been cut with laying off tens of thousands of teachers, where several towns have laid off their police forces and many others have cut back, where the whole women's health program has been eliminated, where Medicaid has been cut drastically... And apparently from what I've read, every other state with a republican government is suffering the same thing. Check out Wisconsin. Their public education is suffering as badly as Texas'.
-6 # Daniel1 2012-04-29 14:02
And your statement is an utter mistruth. have you checked out California yet? State workers being made to go one month a year with no pay. Instead of getting your state tax return, you get an "I.O.U" from the start treasury. Roads and bridges are at the point of collapse. over 80% of their schools rated at 40% or lower with 100% being the top schools and the teachers are still demanding more and more, so much so that out of every dollar that goes to California schools, less then 5 cents reaches the kids as the rest goes for pay and benefits. City officials stealing tax payers blind, need I go on? California and NY and Washington State and NJ and Michigan and even more states are and have been ruled by the Democrats for more then 40 years, and every one of them is sinking swiftly into bankruptcy. Where Republicans run the roost, like in Ohio and Indiana, unemployment is down, taxes are down and Ohio closed an 8 BILLION DOLLAR budget hole in one year and now is not only back in the black, but has had their credit improved to AAA+ from A+ under a Republican Gov.

Now how can this be? If they are making more jobs in Texas then all the other states, how can it be as bad as you are claiming? Answer isnt My sister Barb and her husband lives in the Dallas-Ft Worth area.
-1 # LonnyEachus 2012-05-04 03:03
I stated the PERCENTAGE of Denmark that is coastline is vastly larger than that of the United States, and it is. They are not even remotely comparable, and you don't even need to measure it to see that; just pull out a map.

And to say that we haven't been practicing austerity is no mistake. Just look at the damn numbers. They are public and you can get them just about anywhere. I repeat: the United States government spent more money last year than EVER in the history of this country. That is hardly austerity.

And what difference does it make if Texas has tightened its belt, if the Federal government is spending the money anyway, and inflating the rest so what you have left is worth less?

The fact that Medicaid has been cut is also of no consequence, because once again: the Federal government spent MORE money last year than the year before, and the year before that, and so on clear back to the founding of this country. It has NEVER spent so much. Krugman's "austerity" simply doesn't exist, and that one number is all you need to know to prove it.
-5 # robbeygay 2012-04-27 18:41
Sure sounds right tom me
-23 # MidwestTom 2012-04-27 11:02
The problem is we never slash our budget when times are good, and consequently we have an a debt that is swamping us, and the NYC bankers who own the debt and to whom our government pays interest, keep encouraging us to go even farther into debt, so they will get even richer. Our government debt is a big reason we have the 1% problem.
+31 # pbbrodie 2012-04-27 11:31
You are right but it is the enormous military budget that's the culprit and, unfortunately, it is sacrosanct. All of the GOP and way too many Democrats are perfectly willing to destroy the safety net but refuse to even consider freezing the military budget, much less cutting it. They won't even cut completely unnecessary programs that the Secretary of Defense says need to go.
+28 # noitall 2012-04-27 11:37
No, we just slash taxes for the rich, I suppose as a reward for the good times (forgetting that the rich aren't creating the jobs). When the bad times come, like now, we don't reinstate the taxes, using the erroneous excuse that THEY are the job creators. When it becomes clear that the 'good times' were just smoke and mirrors to hide the looting, we punish those that played no role (us) by slashing infrastructure programs like education, health, social building, bridgebuilding, alternate energy, etc. and bail out THEM as a punishing reward for their brilliant smoke and mirrors act (while sinking those trusting enough to have taken them up on their housing loans, investment opportunities, etc.). So MidTom, "the debt that is swamping us" will not be solved by "slashing the budget" but by being truthful with ourselves about how this came to be and punishing those who deserve it rather than those who only played by the rules set up by those with an evil agenda.
-19 # LonnyEachus 2012-04-27 13:29
I don't think telling the truth is going to get you any points in this particular forum.
+14 # Texas Aggie 2012-04-27 15:05
Actually telling the truth is something valued here. The problem is that Tom doesn't understand what truth is about.
+13 # Texas Aggie 2012-04-27 15:11
There is no reason that the budget should be slashed when times are good. That's the time to pay down the debt run up when times were bad. That's the time to invest in infrastructure that needs to be developed. It's called investment for a reason. Instead we got tax cuts for the rich while two wars and two major domestic expenditures (Plan D and NCLB) went on the credit card. When times are good is the time to raise taxes to pay for what needs to be done.
+24 # Buddha 2012-04-27 11:18
The problem is that if you look at the polls, a majority of Americans still believe in "cuts" as the solution to our economic issues. The GOP are masters of repeating a believable convenient lie over and over and getting people to swallow it, hook-line-and-s inker. The Dems are going to have to learn how to counter these lies in a clear short concise way, and that has always been the Left's problem. Progressive policies tend to require an in-depth "wonkish" explanation and at least a few neurons working to understanding, something a LOT of voters won't bother with. If you can't sum up your philosophy in a space about the size of a bumper sticker or in a 10 second sound-bite, you aren't going to get people on your side, unfortunately. The GOP has master word crafters like Luntz giving them stuff like "job creators"...the Left needs to be more savvy and do the same. Yes, it is a shame that we can't rely on an informed electorate to see through the GOP flim-flam, but there it is...
+15 # noitall 2012-04-27 12:17
Buddah, That's because money IS speech and Americans are lemmings and only 'know' what they hear every 5 minutes. We know who holds the microphone. The Supreme Court ruled that money is speech, corporations are people. Doesn't it piss you off to receive those pleas from Democrats saying "carl rove is spending 10 billion dollars to kill Joe Blo please give 10 dollars to help us save worthy Joe". If our only weapon is to fight the GOP $ for $, we're screwed (until Corps are People is overturned). If the American People have to wait for the Dems to come up with a plan, become creative and aggressive against the lies and aggression being stuffed down the throats of Americans with plenty of gold to the media moguls, we're going to be waiting for a long time. in the meantime, throw your contributions and efforts, your extra time and voice into supporting OWS in the streets. Demand that the treasonous, traitors that call themselves "representative s" realize we've got their number, we're watching, and that they still rely on voters for their cushy jobs and health care (they'd have to work to lobby and not all of them are ready to be authors).
+5 # robbeygay 2012-04-27 18:48
Not cuts, you do need jobs, as someone above said, use treasury not to bail Corp America they fail let their shareholders bear the risk all casino betters and share investors make. they seek the gains, they wear the pain, bankruptcy not bailouts will fix their business mistakes.

Let those bailouts build labor employing public works, fast-rail, offshore wind-power, repair roads & other infrastructure and above all stop propping up war & spoace machine builders create jobs, not jobs for high-techers. Stop trying to export overproduction of mechanization to further impoverish the underdeveloped.
+14 # jwb110 2012-04-27 12:18
None of this about attacking the 1% and taking their precious stolen dollars. Economies are always a bottom up system never a top down.
The Stel Industry in this country was great as the big guys bought up little "puddler" steel makers and formed conglomerates. They never created any of the businesses on their own. Small business were bought up to make big businesses.
The economy of today, with less manufacturing will not work the same way. 71% of GDP when the economy was good was consumer spending. Once again, it is clear that it is a bottom up system and should be treated as such. George H.W. Bush called Supply Side Economics a Voo Doo idea. He was right.
+3 # Innocent Victim 2012-04-27 13:34
Mr Krugman asserts that austerity will not restore prosperity, and I think he is right. But he does not say what would restore prosperity in the US. Keynesian policies would help, but Krugman knows that our problem is systemic not just lagging demand.
There was perhaps a time, the 1930s, when demand stagnation was a cause of the problem, but now it is a symptom. Krugman fails to attack the causes.
In my view, the causes are imperialism and a non-productive economy, in terms of consumer goods. Imperialism has destroyed our consumer sector as much as cheap overseas labor. We invest in armaments and produce some of the best in the world. The failure to invest in consumer production or to encourage it, along with tax policies favoring outsourcing of labor and outflows of capital are major parts of our systemic failure. Mainstream economists do not often mention the war-machine as a cause of our problems. Krugman doesn't. He writes for the jingoistic NYT. What would one expect?
-16 # LonnyEachus 2012-04-27 15:36
In all seriousness: Keynesian policy (for example, government "stimulus" and low Fed interest rates) are exactly the policies that HAVE been followed.

Krugman's assertion that "austerity" measures haven't worked is worse than disingenuous, it's facetious. Look at the actual amount of money that the U.S. government has in fact spent, up to and including last year. It has gone up EVERY year.

There have been no "austerity" measures of any significance that have been followed to any real degree, to date. Maybe they have been called for in future years, but that hasn't happened yet, so it cannot be the cause of our problems.

Just look at the bottom line, man. It proves Krugman wrong. This isn't genius material.
+8 # Innocent Victim 2012-04-28 12:15
Strange how we both devalue Krugman but for vastly differing reasons. You lump the expenditures of the federal government together, for war and for the domestic economy, as if it did not matter how money is spent. All you consider is the expenditure, itself. I'll bet how you or members of you family spend money matters a great deal to you. My guess is you really want austerity, because you want to see the least able members of our society squeezed further and not because you want to see prosperity for the vast majority of our citizens return to our country.
-1 # LonnyEachus 2012-05-04 03:06
No, you have misunderstood me. I think what we spend the money on is EXTREMELY important.

I simply used the lump sum because that one number is all one needs to prove Krugman wrong. No further argument was necessary.
+6 # balconesfalk 2012-04-27 13:39
Isn't it the Chicago Boys or the Chicago Gang of economists who gave this argument traction? They need to be countered at the highest academic levels, for starters. The elected leadership surely ought to use it's bully pulpit to educate the electorate as to how these misguided, specious and dangerous arguments got it all wrong. How suspect are their motives for getting it all wrong, too.
+8 # vicnada 2012-04-27 14:41
"So we’re now living in a world of zombie economic policies — policies that should have been killed by the evidence that all of their premises are wrong, but which keep shambling along nonetheless." Count on a mindless electorate to install Mitt Zombie..."and it’s anyone’s guess when this reign of error will end."
+15 # worldviewer 2012-04-27 15:01
PONZI CAPITALISM--is the model present-day westerm economists are following, of perpetual growth for survival--the same as a Ponzi scheme. But when the economy reaches its limits of growth the model is that of complex civilizations that overextend themselves and collapse--as history has so often recorded.

What we need is a sustainable model--and the best example is "NATURE'S ECONOMY" on which our economy is built. Ecosystems are flexible and adaptable yet can maintain a steady state--they are self-correcting through systems of feedback.
Nature has repeatedly given indications of partial collapse-- e.g. the dead zone around the mouth of the Mississippi River.

Austerity doesn't work because it interrupts the flow of trade.
In sustainable systems in nature there is a constant "trade" of oxygen and carbon dioxide between plants and animals.
Capitalism is making the same mistake as Marxism--assumi ng that the economy is the bedrock foundation, whereas the environment and human community are the foundations on which the economy is built.
0 # LonnyEachus 2012-05-13 15:54
Quoting worldviewer:
PONZI CAPITALISM--is the model present-day westerm economists are following, of perpetual growth for survival--the same as a Ponzi scheme. But when the economy reaches its limits of growth the model is that of complex civilizations that overextend themselves and collapse--as history has so often recorded.

I agree with you but I would offer one minor correction: your "Ponzi Capitalism" -- which is a pretty apt description, really, but I think its connection to Crony Capitalism should not be overlooked -- is not actually Capitalism at all. Rather, it is a bastardization of Capitalism that renders many of the normal market forces of actual Capitalism moot.

Capitalism is making the same mistake as Marxism--
No, it isn't, because "Ponzi Capitalism" and "Crony Capitalism" aren't really Capitalism. They represent serious DEVIATION from real Capitalism. Your argument that we need a sustainable model is one I agree with. And that means getting back to real Capitalism. And THAT means getting rid of Keynesian government-inte rventionist policies, and revolving Crony doors. In all of modern history, the more the government has tried to meddle in and control the economy, the worse the economy has been.
+9 # MidwestTom 2012-04-27 15:26
Unfortunately, in todays America there is so much cash slushing around therefore it is far more profitable to handle money than it is to handle things. When the average pay at Goldman Sacks exceeds $500,000 per year, and they produce nothing, just move money, we know that we have a problem. The 1% are far more interested in making quick millions playing financial games, rather than building companies. They play in the 600 Trillion dollar derivative game, which I believe has a great chance of destroying our whole economy. They also know that they are immune to punishment, based on the lack of prosecution of Corzine. The so called Financial Reform bill changed absolutely nothing in the big money games. The 1% have built a system that enslaves the 99%. It is not capitalism, it is the corrupted version of it that we now have, thanks to the Federal Reserve, and desire of our banks in NYC to rule the world with the blood of our children.
+11 # Susa in Paris 2012-04-27 16:40
Maybe Paul Krugman has got it wrong. Our beloved European leaders understand the economics perfectly well. They are no more stupid than Professor Krugman. They *want* this recession, this hardship, this ruthless disciplining of ordinary people, they are prepared to withstand it personally and they are following the dictates of business and the financial markets which want to claw back all the gains of working people over the past 50-100 years. Some of them even say so. They are starting in France with the CDI, Contrat de Duree indetermine, or employment contract of no fixed duration, which makes it difficult and costly to fire people. That will be only the beginning. Think about it. They don't care, they are not governing for us but for the financial markets. Impossible? I only wish it were.
+2 # paddyrican 2012-04-27 18:29
Paul: When are you going to write about the July,2011 GAO audit of the Federal Reserve which,among other things, disclosed that between 2007&2010 theFed disbursed $16TRILLION to U.S.& foreign banks which coincidently,eq uals the current U.S. national debt!!
+2 # robbeygay 2012-04-27 18:37
Yes Corporate rule seeks profit bigger all the time, consider labor too slack, increase productivity at all cost, greater mechanise to replace falable people labor. Unless OWS can start an unindustrial revolution, de-meconise or ser a ratio of machine to labor, productivity in USA &EU will increasingly need to slow or stop the 3rd world mechanizing and imprioving to remain lacky consumers of your exported overproduction. The alternative is GOP way make war to destroy theirs and return them to consumer subservience, and war rebuilding consumption etc. After Depression 29 came the best profit growth economic improver called WW-II afterv this 29 revisit WW-III perhaps?
-3 # Innocent Victim 2012-04-28 12:20
No economist is worth reading who does not make the borrowing and spending for the US empire a focus of his criticism. Krugman largely ignores this misdirection of our resources. He is part of the establishment, though he pretends concerns for the unumployed and downtrodden. One cannot ignore the imperium and claim to be a (small r) republican.
+1 # woohooman 2012-04-30 21:25
How about the good ole fashion economics called "SCREW THE BANKERS! TIME TO DEFAULT!".

Icelanders refused to be held hostage to a debt that was NOT THEIRS! And they are recovering just fine.
0 # Valleyboy 2012-05-09 09:50
You're missing the point Paul - for the neoliberals that run the IMF and World Bank a crisis is an opportunity to privatise, de-regulate and slash social security.

Straight out of Naomi Klein's The Shock Doctrine, in my opinion the most important book for understanding the mess we're in.

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