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This conclusion was immediately obvious to anyone in 2009 who had ever picked up a basic macroeconomics textbook. The funny thing to me is not how Germany cont

This conclusion was immediately obvious to anyone in 2009 who had ever picked up a basic macroeconomics textbook. The funny thing to me is not how Germany continues to lead the charge for more austerity -- it's in their banks' best interests. Rather, it's funny how this 'new' argument of austerity-driven recovery seems to be taken as somehow valid or relevant for macroeconomic analysis in other countries. For instance, the Debt Ceiling crisis of 2011 [1] is a perfect example of how these kind of psuedoscientific ideas can cause real harm to a country. Especially given how readily certain groups (coughrepublicanscough) are willing to accept these ideas with virtually zero backing or acceptance from established economists. See also: Everything Paul Krugman has ever written. [1] http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis http://en.wikipedia.org/wiki/United_States_debt-ceiling_cris... [2] http://krugman.blogs.nytimes.com/ http://krugman.blogs.nytimes.com/

lyudmil 14y ago
Completely agree. If Paul Krugman isn't enough to sway people, Joseph Stiglitz, another Nobel laureate, has echoed his analysis. So has Dean Baker, who is the first economist to my knowledge to predict the housing bubble and the resulting crisis. Basically, this was easy to see and well-known to economists that aren't neo-liberal demagogs.
- joslin01 14y ago
  About the entire Austrian economics school predicted the housing bubble. Peter Schiff is famous for getting blasted on TV about it. Krugman, on the other hand, was calling for another bubble like the housing bubble: http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip... I find it funny when Keynesians talk about bubbles. What do you think happens when you set interest rates absurdly low? You could make the argument it stimulates the economy, sure, but at what cost?
  - lyudmil 14y ago
    I don't think I follow. Isn't the idea that you weigh the cost of doing so with the cost of a prolonged recession? I have a general ignorance of exactly what Keynesian economics actually means, but from what I gather, it's not one thing.
  - gph1 14y ago
    No doubt that Austrian's avoided some of the neoclassical blind spots that caused many economists to miss the crisis, but then again Austrian's are always predicting crises and they certainly offer no crystal ball--see Peter Schiff's hilarious prediction of soaring inflation every year since 2009. Schiff's misfire is especially relevant to this discussion, because it demonstrates the Austrian school's grossly flawed understanding of public finance and our monetary system (despite having valuable things to say at times).
  - hazov 14y ago
    Schiff also predicted a hyperinflation that never came, actually he just repeated what Rothbard said in some books. He was wrong when he wrote that and still remains wrong, maybe sometime in the eternity he will be right. Actually for me from the point of view of Mises and his praxeology everyone who uses his methodology to advise a policy is just guessing and expecting that his views are coherent with reality.[1] Austrian school is very deep, and not a monolithic bloc like mises.org loves to say, there were Austrian economists who were not Mises and disagreed with his methodology, including Machlup and Wieser who were Mises student and teacher respectively. [1]: More of that in here: http://mises.org/mofase/ch4.asp http://mises.org/mofase/ch4.asp It's just my interpretation of his view.
acabal 14y ago
I think part of the problem is the popular perception that a nation's economy is just like a household economy: i.e. in a household if credit card debt is high, you gotta pay that off before you can spend more; or if you're earning $1000 per month but spending $2000, you gotta cut down on your cable bill and nights out. That's a tantalizingly simple and intuitive comparison that everyone can understand and relate to. Unfortunately a nation's economy is so utterly unlike a household economy that the comparison is downright dangerous, because it leads to harmful false assumptions like "national debt is always a bad thing", "a nation must always 'earn' more than it spends at all times", and "an economy can never grow in a nation with debt". I'm no economic wizard but it really surprised me that how everyone in Europe and many in the States are prescribing austerity, when basic history from this very century frequently demonstrates that austerity can lead to economic damage. Yes you can always find programs that can and should be cut back in any developed society, but considering debt to be the central and only problem in a situation where the debtor defines the very money it "owes" seems a little shortsighted to me.
- dageshi 14y ago
  Austerity in europe is essentially the only politically viable option at the moment. On one side you have Germany and a bunch of nations who refuse point blank to essentially write a blank check for the nations who need it, on the other you've got public opinion which is in no way ready to take the quantum leap of political integration necessary to make fiscal transfers meaningfully possible within the eurozone. So the default action is austerity, the IMF signed off on it because they feared that the euro's breakup would be catastrophically worse than almost any amount of austerity in europe.
  - arrrg 14y ago
    Politically viable, sure – but it’s also the wrong way to go. It’s not sustainable since it won’t lead to forward progress. It only delays the catastrophe, while at the same time options do exist (as outlined in your first paragraph) – but the European leadership cowardly refuses to fight for them. Making something that is not politically viable is a politician’s job – and they refuse to do it.
brc 14y ago
Just to clarify - are you saying everything Paul Krugman has written is true, or everything Paul Krugman has written is false?
- natural219 14y ago
  I mean, not everything Krugman has written is true, but I think that he makes the best case for returning to sane macroeconomic policy that has, for all of its faults, at least some historical backing. I'm definitely pro-Krugman. If you're interested, there are some particular blog posts about the history of the austerity movement and why it's ridiculous: http://www.nytimes.com/2010/07/02/opinion/02krugman.html http://www.nytimes.com/2010/07/02/opinion/02krugman.html -- is a good place to start.
  - brc 14y ago
    Oh, no, I have never agreed with anything he has written and I have read (clearly I have not read everything he has written). But I'm not in the mood to argue about it, so have a pleasant day.
cantastoria 14y ago
I think the real pseudoscientific idea is that debt-financed stimulus is the cure all for any economic ill. The argument that Greece needs to get further into debt to solve it's debt crisis seems insane to me. At this point how much good could a stimulus really do (even if they could find someone to lend them the money to do it). I know the standard Krugman/Keynsian style argument here but it doesn't seem to make much sense in Greece. As another poster said it seems the only real cure for Greece is going to be inflation, probably and unfortunately similar to what happened in Argentina.
- Steko 14y ago
  Greece needs to start throwing millionaires in dingy prisons to make any headway with its problems. The Greek crisis, more than anything, is the result of massive tax evasion.
  - cantastoria 14y ago
    Fair enough. A policy of stricter enforcement of tax laws sounds like a better plan than stimulus to me. Maybe they should start there instead.
  - lyudmil 14y ago
    That's a hypothesis, but it seems unlikely since there are four other European economies facing identical problems - Spain, Italy, Portugal, and Ireland. Spain in particular was a very reasonably managed economy before the crash, running surpluses and growing. So, your hypothesis would require that you attribute the problem in each of these economies to separate causes, which is probably wrong. This is not to say that there wasn't gross economic mismanagement on the part of the Greek government, but focusing on that distracts from the real solution. UPDATE: I'm in complete agreement with everyone pointing out that the problems aren't identical. Perhaps the question is whether, if you were to summarize the causes Euro crisis in broad terms, you ought to mention Greece's economic mismanagement first or the overall crash of the financial markets as the more important factor. My assertion is the latter, mostly echoing Stglitz's analysis here: [1] http://www.youtube.com/watch?v=GdP-Fab8JX8 http://www.youtube.com/watch?v=GdP-Fab8JX8 [2] http://www.youtube.com/watch?v=4Ezn8Sgzxd8 http://www.youtube.com/watch?v=4Ezn8Sgzxd8
ahsanhilal 14y ago
I dont think Krugman's analyses are foregone conclusions, as Greg Mankiw very reasonably proves here: http://gregmankiw.blogspot.com/2012/12/a-krugman-puzzler.html http://gregmankiw.blogspot.com/2012/12/a-krugman-puzzler.htm...

lyudmil 14y ago

Completely agree. If Paul Krugman isn't enough to sway people, Joseph Stiglitz, another Nobel laureate, has echoed his analysis. So has Dean Baker, who is the first economist to my knowledge to predict the housing bubble and the resulting crisis. Basically, this was easy to see and well-known to economists that aren't neo-liberal demagogs.

joslin01 14y ago
About the entire Austrian economics school predicted the housing bubble. Peter Schiff is famous for getting blasted on TV about it. Krugman, on the other hand, was calling for another bubble like the housing bubble: http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip... I find it funny when Keynesians talk about bubbles. What do you think happens when you set interest rates absurdly low? You could make the argument it stimulates the economy, sure, but at what cost?
- lyudmil 14y ago
  I don't think I follow. Isn't the idea that you weigh the cost of doing so with the cost of a prolonged recession? I have a general ignorance of exactly what Keynesian economics actually means, but from what I gather, it's not one thing.
- gph1 14y ago
  No doubt that Austrian's avoided some of the neoclassical blind spots that caused many economists to miss the crisis, but then again Austrian's are always predicting crises and they certainly offer no crystal ball--see Peter Schiff's hilarious prediction of soaring inflation every year since 2009. Schiff's misfire is especially relevant to this discussion, because it demonstrates the Austrian school's grossly flawed understanding of public finance and our monetary system (despite having valuable things to say at times).
- hazov 14y ago
  Schiff also predicted a hyperinflation that never came, actually he just repeated what Rothbard said in some books. He was wrong when he wrote that and still remains wrong, maybe sometime in the eternity he will be right. Actually for me from the point of view of Mises and his praxeology everyone who uses his methodology to advise a policy is just guessing and expecting that his views are coherent with reality.[1] Austrian school is very deep, and not a monolithic bloc like mises.org loves to say, there were Austrian economists who were not Mises and disagreed with his methodology, including Machlup and Wieser who were Mises student and teacher respectively. [1]: More of that in here: http://mises.org/mofase/ch4.asp http://mises.org/mofase/ch4.asp It's just my interpretation of his view.

acabal 14y ago

I think part of the problem is the popular perception that a nation's economy is just like a household economy: i.e. in a household if credit card debt is high, you gotta pay that off before you can spend more; or if you're earning $1000 per month but spending $2000, you gotta cut down on your cable bill and nights out. That's a tantalizingly simple and intuitive comparison that everyone can understand and relate to. Unfortunately a nation's economy is so utterly unlike a household economy that the comparison is downright dangerous, because it leads to harmful false assumptions like "national debt is always a bad thing", "a nation must always 'earn' more than it spends at all times", and "an economy can never grow in a nation with debt". I'm no economic wizard but it really surprised me that how everyone in Europe and many in the States are prescribing austerity, when basic history from this very century frequently demonstrates that austerity can lead to economic damage. Yes you can always find programs that can and should be cut back in any developed society, but considering debt to be the central and only problem in a situation where the debtor defines the very money it "owes" seems a little shortsighted to me.

dageshi 14y ago
Austerity in europe is essentially the only politically viable option at the moment. On one side you have Germany and a bunch of nations who refuse point blank to essentially write a blank check for the nations who need it, on the other you've got public opinion which is in no way ready to take the quantum leap of political integration necessary to make fiscal transfers meaningfully possible within the eurozone. So the default action is austerity, the IMF signed off on it because they feared that the euro's breakup would be catastrophically worse than almost any amount of austerity in europe.
- arrrg 14y ago
  Politically viable, sure – but it’s also the wrong way to go. It’s not sustainable since it won’t lead to forward progress. It only delays the catastrophe, while at the same time options do exist (as outlined in your first paragraph) – but the European leadership cowardly refuses to fight for them. Making something that is not politically viable is a politician’s job – and they refuse to do it.

brc 14y ago

Just to clarify - are you saying everything Paul Krugman has written is true, or everything Paul Krugman has written is false?

natural219 14y ago
I mean, not everything Krugman has written is true, but I think that he makes the best case for returning to sane macroeconomic policy that has, for all of its faults, at least some historical backing. I'm definitely pro-Krugman. If you're interested, there are some particular blog posts about the history of the austerity movement and why it's ridiculous: http://www.nytimes.com/2010/07/02/opinion/02krugman.html http://www.nytimes.com/2010/07/02/opinion/02krugman.html -- is a good place to start.
- brc 14y ago
  Oh, no, I have never agreed with anything he has written and I have read (clearly I have not read everything he has written). But I'm not in the mood to argue about it, so have a pleasant day.

cantastoria 14y ago

I think the real pseudoscientific idea is that debt-financed stimulus is the cure all for any economic ill. The argument that Greece needs to get further into debt to solve it's debt crisis seems insane to me. At this point how much good could a stimulus really do (even if they could find someone to lend them the money to do it). I know the standard Krugman/Keynsian style argument here but it doesn't seem to make much sense in Greece. As another poster said it seems the only real cure for Greece is going to be inflation, probably and unfortunately similar to what happened in Argentina.

Steko 14y ago
Greece needs to start throwing millionaires in dingy prisons to make any headway with its problems. The Greek crisis, more than anything, is the result of massive tax evasion.
- cantastoria 14y ago
  Fair enough. A policy of stricter enforcement of tax laws sounds like a better plan than stimulus to me. Maybe they should start there instead.
- lyudmil 14y ago
  That's a hypothesis, but it seems unlikely since there are four other European economies facing identical problems - Spain, Italy, Portugal, and Ireland. Spain in particular was a very reasonably managed economy before the crash, running surpluses and growing. So, your hypothesis would require that you attribute the problem in each of these economies to separate causes, which is probably wrong. This is not to say that there wasn't gross economic mismanagement on the part of the Greek government, but focusing on that distracts from the real solution. UPDATE: I'm in complete agreement with everyone pointing out that the problems aren't identical. Perhaps the question is whether, if you were to summarize the causes Euro crisis in broad terms, you ought to mention Greece's economic mismanagement first or the overall crash of the financial markets as the more important factor. My assertion is the latter, mostly echoing Stglitz's analysis here: [1] http://www.youtube.com/watch?v=GdP-Fab8JX8 http://www.youtube.com/watch?v=GdP-Fab8JX8 [2] http://www.youtube.com/watch?v=4Ezn8Sgzxd8 http://www.youtube.com/watch?v=4Ezn8Sgzxd8

ahsanhilal 14y ago

I dont think Krugman's analyses are foregone conclusions, as Greg Mankiw very reasonably proves here: http://gregmankiw.blogspot.com/2012/12/a-krugman-puzzler.html http://gregmankiw.blogspot.com/2012/12/a-krugman-puzzler.htm...