Europe is not healing.
http://www.nytimes.com/2013/08/09/opinion/krugman-phony-fear-factor.html?partner=rssnyt&emc=rss
"We live in a golden age of economic debunkery; fallacious doctrines have
been dropping like flies. No, monetary expansion needn’t cause
hyperinflation. No, budget deficits in a depressed economy don’t cause
soaring interest rates. No, slashing spending doesn’t create jobs. No,
economic growth doesn’t collapse when debt exceeds 90 percent of G.D.P.
And now the latest myth bites the dust: No, “economic policy
uncertainty” — created, it goes without saying, by That Man in the White
House — isn’t holding back the recovery.
I’ll get to the doctrine and its refutation in a minute. First, however,
I want to recommend a very old essay that explains a great deal about
the times we live in.
The Polish economist Michal Kalecki published “Political Aspects of Full Employment”
70 years ago. Keynesian ideas were riding high; a “solid majority” of
economists believed that full employment could be secured by government
spending. Yet Kalecki predicted that such spending would, nonetheless,
face fierce opposition from business and the wealthy, even in times of
depression. Why?
The answer, he suggested, was the role of “confidence” as a tool of
intimidation. If the government can’t boost employment directly, it must
promote private spending instead — and anything that might hurt the
privileged, such as higher tax rates or financial regulation, can be
denounced as job-killing because it undermines confidence, and hence
investment. But if the government can create jobs, confidence becomes
less important — and vested interests lose their veto power.
Kalecki argued that “captains of industry” understand this point, and
that they oppose job-creating policies precisely because such policies
would undermine their political influence. “Hence budget deficits
necessary to carry out government intervention must be regarded as
perilous.”
When I first read this essay, I thought it was over the top. Kalecki
was, after all, a declared Marxist (although I don’t see much of Marx in
his writings). But, if you haven’t been radicalized by recent events,
you haven’t been paying attention; and policy discourse since 2008 has
run exactly along the lines Kalecki predicted.
First came the “pivot” — the sudden switch to the view that budget
deficits, not mass unemployment, were the crucial policy issue. Then
came the Great Whine — the declaration by one leading business figure after another
that President Obama was undermining confidence by saying mean things
about businesspeople and doing outrageous things like helping the
uninsured. Finally, just as happened with the claims that slashing
spending is actually expansionary and terrible things happen if
government debt rises, the usual suspects found an academic research
paper to adopt as mascot: in this case, a paper by economists at
Stanford and Chicago purportedly showing that rising levels of “economic
policy uncertainty” were holding the economy back.
But, as I said, we live in a golden age of economic debunkery. The
doctrine of expansionary austerity collapsed as evidence on the actual
effects of austerity came in, with officials at the International Monetary Fund even admitting that they had severely underestimated the harm austerity does. The debt-scare doctrine collapsed once independent economists reviewed the data. And now the policy-uncertainty claim has gone the same way.
Actually, this happened in two stages. Soon after it became famous, the proposed measure of uncertainty was shown to be almost comically flawed;
for example, it relied in part on press mentions of “economic policy
uncertainty,” which meant that the index automatically surged once that
phrase became a Republican talking point. Then the index itself plunged, back to levels not seen since 2008, but the economy didn’t take off. It turns out that uncertainty wasn’t the problem.
The truth is that we understand perfectly well why recovery has been
slow, and confidence has nothing to do with it. What we’re looking at,
instead, is the normal aftermath of a debt-fueled asset bubble; the
sluggish U.S. recovery since 2009 is more or less in line with many
historical examples, running all the way back to the Panic of 1893.
Furthermore, the recovery has been hobbled by spending cuts — cuts that
were motivated by what we now know was completely wrongheaded deficit
panic.
And the policy moral is clear: We need to stop talking about spending
cuts and start talking about job-creating spending increases instead.
Yes, I know that the politics of doing the right thing will be very
hard. But, as far as the economics goes, the only thing we have to fear
is fear-mongering itself."
1
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20
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