{"id":313,"date":"2013-01-15T13:01:54","date_gmt":"2013-01-15T18:01:54","guid":{"rendered":"http:\/\/napervilledemocrats.org\/ntdo\/?p=313"},"modified":"2013-01-15T13:01:54","modified_gmt":"2013-01-15T18:01:54","slug":"krugman-how-we-got-here-and-the-effort-to-make-things-worse","status":"publish","type":"post","link":"https:\/\/napervilledemocrats.org\/ntdo\/krugman-how-we-got-here-and-the-effort-to-make-things-worse\/","title":{"rendered":"Krugman: How We Got Here, and the Effort to Make Things Worse"},"content":{"rendered":"
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\"\"Professor Krugman is at the\u00a0annual meeting of the American Economic Association and affiliates and the subject is – yet again – the ongoing economic crisis. \u00a0What caused it and why haven’t we recovered yet?<\/p>\n<\/div>\n

The evidence keeps proving him right in his consistent assertion that we have been wrongly focused on deficit reduction when we should have been “spending to support [our economy] while the private sector regained its balance.”<\/p>\n

And we’re still focused on the wrong objective. \u00a0If the Tea Partiers get their way, we’ll squander this painfully-gained recovery and head right back into recession.<\/p>\n

\n

The Big Fail<\/a><\/h2>\n

…<\/p>\n

This isn\u2019t how things were supposed to be. If you had polled the economists attending this meeting three years ago, most of them would surely have predicted that by now we\u2019d be talking about how the great slump ended, not why it still continues.<\/p>\n

So what went wrong? The answer, mainly, is the triumph of bad ideas.<\/p>\n

…The financial crisis led, through several channels, to a sharp fall in private spending: residential investment plunged as the housing bubble burst; consumers began saving more as the illusory wealth created by the bubble vanished, while the mortgage debt remained. And this fall in private spending led, inevitably, to a global recession.<\/p>\n

For an economy is not like a household. A family can decide to spend less and try to earn more. But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall \u2014 and unemployment will soar.<\/p>\n

…<\/p>\n

At that point governments needed to step in, spending to support their economies while the private sector regained its balance. And to some extent that did happen: revenue dropped sharply in the slump, but spending actually rose as programs like unemployment insurance expanded and temporary economic stimulus went into effect. Budget deficits rose, but this was actually a good thing, probably the most important reason we didn\u2019t have a full replay of the Great Depression.<\/p>\n

But it all went wrong in 2010. The crisis in Greece was taken, wrongly, as a sign that all governments had better slash spending and deficits right away. Austerity became the order of the day, and supposed experts who should have known better cheered the process on, while the warnings of\u00a0some (but not enough) economists<\/a>\u00a0that austerity would derail recovery were ignored. For example, the president of the European Central Bank confidently asserted that \u201cthe idea that austerity measures could trigger stagnation is incorrect.\u201d<\/p>\n

Well, someone was incorrect, all right.<\/p>\n

…<\/p>\n

… European leaders, having created Depression-level suffering in debtor countries without restoring financial confidence, still insist that the answer is even more pain. The current British government, which killed a promising recovery by turning to austerity, completely refuses to consider the possibility that it made a mistake.<\/p>\n

And here in America, Republicans insist that they\u2019ll use a confrontation over the debt ceiling \u2014 a deeply illegitimate action in itself \u2014 to demand spending cuts that would drive us back into recession.<\/p>\n

The truth is that we\u2019ve just experienced a colossal failure of economic policy \u2014 and far too many of those responsible for that failure both retain power and refuse to learn from experience.<\/p><\/blockquote>\n