I like Paul Krugman, he's a smart guy, a brilliant economist, and he knows what he's talking about on the fiscal side of things. But on the politics side,
he comes across as a bit naive at times, like he does today as he talks about the growing crusade to cut the deficit in the middle of the worst unemployment in a generation.
A similar argument is used to justify fiscal austerity. Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea — not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts. And the O.E.C.D. predicts that high unemployment will persist for years. Nonetheless, the organization demands both that governments cancel any further plans for economic stimulus and that they begin “fiscal consolidation” next year.
Why do this? Again, to give markets something they shouldn’t want and currently don’t. Right now, investors don’t seem at all worried about the solvency of the U.S. government; the interest rates on federal bonds are near historic lows. And even if markets were worried about U.S. fiscal prospects, spending cuts in the face of a depressed economy would do little to improve those prospects. But cut we must, says the O.E.C.D., because inadequate consolidation efforts “would risk adverse reactions in financial markets.”
The best summary I’ve seen of all this comes from Martin Wolf of The Financial Times, who describes the new conventional wisdom as being that “giving the markets what we think they may want in future — even though they show little sign of insisting on it now — should be the ruling idea in policy.”
Put that way, it sounds crazy. And it is. Yet it’s a view that’s spreading. And it’s already having ugly consequences. Last week conservative members of the House, invoking the new deficit fears, scaled back a bill extending aid to the long-term unemployed — and the Senate left town without acting on even the inadequate measures that remained. As a result, many American families are about to lose unemployment benefits, health insurance, or both — and as these families are forced to slash spending, they will endanger the jobs of many more.
Now Krugman's correct on all this...except for the why. He attributes it to craziness when he should be attributing it to old fashioned greed.
Look folks, the powers that be have decided that the continuation of the covenant between government and worker is unsustainable. That's not true of course, but to keep this up, the wealthiest would actually have to, you know, pay more taxes. That will not be allowed to happen.
So, the notion that we have to cut spending, that government is evil and inefficient, and that those who are out of work are simply lazy and undeserving parasites, well that's all over the newspapers and blogs these days. The GOP is more than happy with it, and the Democrats are increasingly falling for it. After all, poor people don't get into Congress, ya dig? They don't matter.
Let them suffer. The wealthier will grow more wealthy, and that's the way the world is supposed to work, right?
