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Krugman Wishes He Were Wrong Amid EU Austerity Backlash

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After 2-3 years of "austerity" programs, Europeans are starting to look at their economies in a different manner.

Krugman Wishes He Were Wrong Amid EU Austerity Backlash

Europe’s shifting emphasis from enforcing austerity to seeking economic growth marks a hollow victory for Nobel laureate Paul Krugman.

“I wish I’d been wrong for the sake of the world,” Krugman said in an interview with Bloomberg Television’s Carol Massar. “You can see that there has been a definite shift in opinion.”

The euro area’s push to revive confidence in its economy and financial markets by attacking budget deficits will be challenged at the ballot boxes of France and Greece on May 6 as the region’s economy skids toward its second recession in three years and unemployment nears 11 percent.

'Somehow', in some mysterious fashion, the "failed" stimulus programs advocated and pushed for by the Administration have kept the US from falling back into recession. Now that the stimulus funding has ended, we are starting to see the economy here beginning to slow. Naturally those of the Austrian school think that this proves their point that government should spend even less.
 
Right -- as the European countries that concentrated on spending cuts fall like dominoes back into recession.
 
After 2-3 years of "austerity" programs, Europeans are starting to look at their economies in a different manner.



'Somehow', in some mysterious fashion, the "failed" stimulus programs advocated and pushed for by the Administration have kept the US from falling back into recession. Now that the stimulus funding has ended, we are starting to see the economy here beginning to slow. Naturally those of the Austrian school think that this proves their point that government should spend even less.
And the money to continue Europes deficit spending was going to come from where? Krugman? Are you willing to lend Greece more money? I didnt think so. Yet you want the money magically appear from....somewhere.

As for the US, your post simply highlights the ultimate failure of Obamas policies. We now have an economy that is addicted to stimulus. And like any addict, the US is now experiencing withdrawl as the latest fix wears off. Whats your solution? Another fix, then another and another after that. Deficit spending is simply borrowing from the future. For Europe, that future has arrived and it isnt very promising. For the US, borrowing can only lead to austerity or inflation. People really need to stop pretending that our current policy is without consequence.
 
Come on guys...lets get honest...No one is more against corporate pigs at the trough that lpast...but lets be fair and honest.

We need an Austerity program...we need "REASONABLE" entitlement reform...and we need the rich to "ACTUALLY" pay something near what they should have been all along and have not.

What we have instead of "REASON" is this assinine Teaparty far right group of rich brats that think they are entitled to EVERYTHING now instead of most and that they are going to take whats left from a "SMALL" middle class they created out of greed...running to china.
Corporations put all these americans out of work and not paying taxs all on thier OWN....Id bet if you count the unemployed that total number would pale compared to how many job have been created in china since the first one....THE TEAPARTY and the super conservatives on here refuse to acknowledge that.
If they wont do all 3 reasonably...Austerity, Entitlement Reform and Rich pay a fair share....then im voting for Whoever says anything I want to hear thats just good for me....like everyone else :)
 
Several quick points:

1. This outcome reaffirms mainstream economic principles: In the short-run, increased government spending is stimulative; in the short-run cuts in government spending place a drag on the economy.

2. In the long-term, all nations, including the U.S., have a threshold of debt intolerance.

3. Addressing debt-related challenges is optimally carried out in a gradual fiscal consolidation program and ideally undertaken when the economy is growing. The U.S. is in this position. Germany is in this position. Germany is undertaking fiscal consolidation, though an aggressive one. The U.S. is not undertaking meaningful fiscal consolidation.

4. Waiting until a debt crisis is imminent or underway requires far more painful austerity. Then, a reasonable timeframe for a transition is no longer available. Austerity is far more drastic than the gradual fiscal consolidation program and the luxury of waiting until the economy is growing to launch such a program does not exist. Greece fell into this situation.

5. In democratic countries, austerity can prove unsustainable if it doesn't quickly achieve desired outcomes. Over time, the public can use the ballot box to choose governments that abandon the path of austerity. Today's elections in Greece increase prospects that a new less austerity-friendly Greek government could gain power. France will also likely see a new government that favors greater fiscal accommodation than the current one headed by President Sarkozy.
 
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And the money to continue Europes deficit spending was going to come from where? Krugman? Are you willing to lend Greece more money? I didnt think so. Yet you want the money magically appear from....somewhere.
It was going to have to come from the EU central bank, which could fund it via bonds...just like we do. Since Greece is on the Euro, they could not raise the funding themselves.

As for the US, your post simply highlights the ultimate failure of Obamas policies. We now have an economy that is addicted to stimulus. And like any addict, the US is now experiencing withdrawl as the latest fix wears off. Whats your solution? Another fix, then another and another after that. Deficit spending is simply borrowing from the future.
No, our economy is not an addict, it was a heart attack victim. The stimulus was a shock to keep the heart beating, but the rest of the care needed has been lacking, and we might be getting sick again, the first treatment did not get enough or keep enough employed.


For Europe, that future has arrived and it isnt very promising. For the US, borrowing can only lead to austerity or inflation. People really need to stop pretending that our current policy is without consequence.
LOL...yeah, about that inflation....it isn't happening...and borrowing leads to austerity? No, borrowing leads to repayment in the future, where mild inflation causes the past borrowing to decrease in amount on top of the fact that borrowing now has less that zero interests costs.
 
Krugman is a liar. I still don't understand why people use him as a reference, especially here. This is not Democratic Underground.

Actually, Greece didn't do any austerity before they run out of money in 2010. They would love to keep going, but who are going to lend them. Even with plenty of money, Greece would just muddle through and there would be no hope of them paying back. However, Germany has implemented a pretty tough austerity program, and they are not doing badly at all. Ireland was in a much worse situation than Greece, they had a very tough austerity program, and they are doing well.

There is no connection. The problem is, Greece is like a drug addict. They are addicted on credit. They don't want to reform, and corruption and tax evasion is widespread. EU officals told us first there was no problem in Greece, then that a bailout will solve all problems, then a second bailout, but they won't default, then they defaulted, but pretended it wasn't a default. In return Greece were supposed to do reforms they had no interest in doing. The expectations were way off, and the market is terrified of Greece right now. Would you put money in a Greek bank? Would you lend them money? Would you start up a business? There is no trust. If the EU hadn't sugar-coated the situation, and let Greece find solutions to their problems on their own, then Greece would probably be out of the recession right now.

The problems in EU is due to lack of trust, and setting wrong expectations. It is not due to austerity.
 
It was going to have to come from the EU central bank, which could fund it via bonds...just like we do. Since Greece is on the Euro, they could not raise the funding themselves.
Why should the rest of the EU pay for letting Greece stay afloat? But it was never going to happen, because Greece was supposed to not default. It is also against EU laws.

LOL...yeah, about that inflation....it isn't happening...and borrowing leads to austerity? No, borrowing leads to repayment in the future, where mild inflation causes the past borrowing to decrease in amount on top of the fact that borrowing now has less that zero interests costs.
It doesn't work that way, because cutting after a recession is even harder, because you are not forced to. Just look at Japan. Hence, the country will keep running deficits till next crisis. During the next crisis, no one is going to lend you money, and that is when you become like Greece. Instead of doing mild cuts, then you have to do massive cuts over a very short timespan, and the economy collapses.
 
Krugman is a liar. I still don't understand why people use him as a reference, especially here. This is not Democratic Underground.

Actually, Greece didn't do any austerity before they run out of money in 2010. They would love to keep going, but who are going to lend them. Even with plenty of money, Greece would just muddle through and there would be no hope of them paying back. However, Germany has implemented a pretty tough austerity program, and they are not doing badly at all. Ireland was in a much worse situation than Greece, they had a very tough austerity program, and they are doing well.
Where are you getting that Ireland is "doing well"? By what measure?

Ireland Triumphs!
Or, maybe not.

There’s a visible push to claim that recent Irish experience — somewhat better-than-expected growth in the second quarter, rising exports — vindicates austerity policies. Here’s a new piece on export growth, trumpeting a rise in pharma exports.

So, some cold water. First of all, eventual recovery after years of Depression-level unemployment is a strange definition of success. But there’s also a specifically Irish twist. Pharma accounts for a large share of Irish exports — but it makes a much smaller contribution to the Irish economy. Partly that’s because pharma uses a lot of imported inputs, so that it has relatively low domestic content. Partly that’s because pharma is very capital-intensive, employing very few people — and the capital is foreign owned, so that the contribution to Gross National Product, which deducts income paid to foreigners, is smaller than the contribution to Gross Domestic Product, which doesn’t. Indeed, Ireland is one of those countries where you really want to track GNP rather than GDP to get a sense of how the country is doing.

And here’s how it’s doing:

093011krugman1-blog480.jpghttp://krugman.blogs.nytimes.com/2011/09/30/ireland-triumphs/


Cam said:
There is no connection. The problem is, Greece is like a drug addict. They are addicted on credit. They don't want to reform, and corruption and tax evasion is widespread. EU officals told us first there was no problem in Greece, then that a bailout will solve all problems, then a second bailout, but they won't default, then they defaulted, but pretended it wasn't a default. In return Greece were supposed to do reforms they had no interest in doing. The expectations were way off, and the market is terrified of Greece right now. Would you put money in a Greek bank? Would you lend them money? Would you start up a business? There is no trust. If the EU hadn't sugar-coated the situation, and let Greece find solutions to their problems on their own, then Greece would probably be out of the recession right now.
The problem with Greece goes back much further, they did not have an economy that really allowed them to be a full member in the Euro along with their inability to collect taxes in a sufficient manner, but the bigger problem was the speculating and over-valuation of Greek properties/businesses. Now they are defaulting from the world-wide recession. It is up to the EU whether it wants to lose a member state (and I think that would be a good thing for Greece to do, they need to regain control over their own currency).

Cam said:
The problems in EU is due to lack of trust, and setting wrong expectations. It is not due to austerity.
Ah, the confidence fairy tale.
Austerity, the reduction of govt spending on top of reduced private demand will always lead to extended, deeper recessions. We already know that.
 
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It was going to have to come from the EU central bank, which could fund it via bonds...just like we do. Since Greece is on the Euro, they could not raise the funding themselves.
I see. And who is going to buy those bonds and at what rate and at what cost to the value of the Euro? Plus you seem to be pretending that Greecesw problem is something other than its inability to amke payments on the loans it has already received. You will have to explain to me how it is that the solution for a country unable to pay its debts is to increase its debt burden.
No, our economy is not an addict, it was a heart attack victim. The stimulus was a shock to keep the heart beating, but the rest of the care needed has been lacking, and we might be getting sick again, the first treatment did not get enough or keep enough employed.
The recession ended 3 years ago. What you are suggesting is endless stimulus/government spending.


LOL...yeah, about that inflation....it isn't happening...and borrowing leads to austerity? No, borrowing leads to repayment in the future, where mild inflation causes the past borrowing to decrease in amount on top of the fact that borrowing now has less that zero interests costs.
Sure, borrowing now has its advantages. The trouble is, rates will not remain this low forever and everything borrowed today has to eventually be rolled over at higher rates. What you are saying is that inflation will helop you cheat your lenders out of recovering the full value of their loans. What you havent taken into consideration is that lenders understand this. That is why rates will rise.
 
Come on guys...lets get honest...No one is more against corporate pigs at the trough that lpast...but lets be fair and honest.

We need an Austerity program...we need "REASONABLE" entitlement reform...and we need the rich to "ACTUALLY" pay something near what they should have been all along and have not.

What we have instead of "REASON" is this assinine Teaparty far right group of rich brats that think they are entitled to EVERYTHING now instead of most and that they are going to take whats left from a "SMALL" middle class they created out of greed...running to china.
Corporations put all these americans out of work and not paying taxs all on thier OWN....Id bet if you count the unemployed that total number would pale compared to how many job have been created in china since the first one....THE TEAPARTY and the super conservatives on here refuse to acknowledge that.
If they wont do all 3 reasonably...Austerity, Entitlement Reform and Rich pay a fair share....then im voting for Whoever says anything I want to hear thats just good for me....like everyone else :)

You say that like the left has shown *ANY* inclination to adopt austerity measures or entitlement reform. They spend like drunken sailors and any talk about cutting entitlements is met with wails and gnashing of teeth. Stop pretending it's the Tea Party's fault. Who is in power right now? Who is running up the deficit to unheard of levels?
 
After 2-3 years of "austerity" programs, Europeans are starting to look at their economies in a different manner.



'Somehow', in some mysterious fashion, the "failed" stimulus programs advocated and pushed for by the Administration have kept the US from falling back into recession. Now that the stimulus funding has ended, we are starting to see the economy here beginning to slow. Naturally those of the Austrian school think that this proves their point that government should spend even less.
Very strange then that Greece went belly-up. For years Greece essentially followed Krugman's ideas (austerity being for suckers) and wound up bankrupt and panhandling in the capitals of Europe.
 
Krugman is a liar. I still don't understand why people use him as a reference, especially here. This is not Democratic Underground.

Actually, Greece didn't do any austerity before they run out of money in 2010. They would love to keep going, but who are going to lend them. Even with plenty of money, Greece would just muddle through and there would be no hope of them paying back. However, Germany has implemented a pretty tough austerity program, and they are not doing badly at all. Ireland was in a much worse situation than Greece, they had a very tough austerity program, and they are doing well.

There is no connection. The problem is, Greece is like a drug addict. They are addicted on credit. They don't want to reform, and corruption and tax evasion is widespread. EU officals told us first there was no problem in Greece, then that a bailout will solve all problems, then a second bailout, but they won't default, then they defaulted, but pretended it wasn't a default. In return Greece were supposed to do reforms they had no interest in doing. The expectations were way off, and the market is terrified of Greece right now. Would you put money in a Greek bank? Would you lend them money? Would you start up a business? There is no trust. If the EU hadn't sugar-coated the situation, and let Greece find solutions to their problems on their own, then Greece would probably be out of the recession right now.

The problems in EU is due to lack of trust, and setting wrong expectations. It is not due to austerity.

And you got your economics degree from where? Because you're going to have to do a LOT more work than this to try to outdo Krugman.

Greece cooked their books, which is why their problem is by far the worst. But austerity has stalled out their economy entirely. The same thing is happening in Spain, which is the Eurozone's third biggest economy and could be a MASSIVE problem for the world economy if they collapse. The only way out of recession is spending.

History and present conditions prove that austerity is a failure during a recession.

Austerity's Greatest Failure - Matthew O'Brien - Business - The Atlantic

“It took 30 years of frivolous public spending to bring the country to a debt-to-GDP ratio of 120%. Two years of severe austerity brought debt to 168% of GDP. Obviously the medicine didn’t work.”

(from this article)

There's ample evidence that austerity is a failure as a policy.
 
And you got your economics degree from where? Because you're going to have to do a LOT more work than this to try to outdo Krugman.

Greece cooked their books, which is why their problem is by far the worst. But austerity has stalled out their economy entirely. The same thing is happening in Spain, which is the Eurozone's third biggest economy and could be a MASSIVE problem for the world economy if they collapse. The only way out of recession is spending.

History and present conditions prove that austerity is a failure during a recession.

Austerity's Greatest Failure - Matthew O'Brien - Business - The Atlantic

“It took 30 years of frivolous public spending to bring the country to a debt-to-GDP ratio of 120%. Two years of severe austerity brought debt to 168% of GDP. Obviously the medicine didn’t work.”

(from this article)

There's ample evidence that austerity is a failure as a policy.
Greece cooked the books because they were broke, they were not broke because they cooked the books. That's is an inane argument. I understand why your article selected Portugal rather than Greece. Greece would have squarely invalidated his conclusions. The failure was lack of austerity of the parts of successive Greek governments which were more concerned to clinging to power than confronting strong unions and a bloated public sector.
 
I see. And who is going to buy those bonds and at what rate and at what cost to the value of the Euro? Plus you seem to be pretending that Greecesw problem is something other than its inability to amke payments on the loans it has already received. You will have to explain to me how it is that the solution for a country unable to pay its debts is to increase its debt burden.
The EUCB would have to determine the rate, the world market will decide if the bonds are good or not....free market...that is how it works...right?

As far as Greece, I think I have already posted the general timeline and what they could do.
The recession ended 3 years ago. What you are suggesting is endless stimulus/government spending.
The official NBER recession is over, the effects continue...it is called "job losses", look it up sometime, google it, i'm sure there is something out there about it.


Sure, borrowing now has its advantages. The trouble is, rates will not remain this low forever and everything borrowed today has to eventually be rolled over at higher rates. What you are saying is that inflation will helop you cheat your lenders out of recovering the full value of their loans. What you havent taken into consideration is that lenders understand this. That is why rates will rise.
I'm sorry, if you don't know how bonds work, this is pointless to continue, on top of this faked ignorance about continuing recessionary effects.
 
Greece cooked their books, which is why their problem is by far the worst. But austerity has stalled out their economy entirely.

Greece cooked the books because they were broke, they were not broke because they cooked the books. That's is an inane argument. I understand why your article selected Portugal rather than Greece. Greece would have squarely invalidated his conclusions. The failure was lack of austerity of the parts of successive Greek governments which were more concerned to clinging to power than confronting strong unions and a bloated public sector.
That is not his argument, you created a straw argument, very poorly at that. Try again.
 
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this is pointless to continue
You are right about that at least. I wasnt going to waste my time responding to you but I had some extra time on my hands. My bad.
 
Where are you getting that Ireland is "doing well"? By what measure?

By the measure of the Anglo-American right wing... Ireland was their baby after all.. the Celtic Tiger.... for years the Anglo-American right wing went on and on.. on how the rest of Europe should do like Ireland and that Ireland was the next rising star. Well.. the truth about Ireland is being hidden from people, because it would cause a run on the UK if Ireland went belly up.
 
It is a very poor argument, but still an argument.

LOL ... seriously? It is the main argument why people are pissed at Greece and wont lend them money.

Sure Greece has massive structural problems, but we have known about them for many many decades. What we did not know, was that Greece would go to such lengths to hide the truth from the world.... that has caused a huge trust issue with Greece.
 
Greece cooked the books because they were broke, they were not broke because they cooked the books. That's is an inane argument. I understand why your article selected Portugal rather than Greece. Greece would have squarely invalidated his conclusions. The failure was lack of austerity of the parts of successive Greek governments which were more concerned to clinging to power than confronting strong unions and a bloated public sector.

Wait...so you think austerity is making things better for Greece? Spain? Ireland is the closest thing to a success, but they've only just experienced their first quarter of growth, while we here in the US have had 11 straight quarters of growth. The UK's austerity program has resulted in 4 of their last 6 quarters shrinking and their highest quarter of growth post-recession is a mere 1/3 of what our best quarter has been.

It hasn't been a success anywhere. It results in slow growth or (worse) a return to recession, which (as we know) only makes debt grow due to lower tax receipts. That's why debt is growing in the countries who have instituted these policies instead of shrinking. Stimulate first; then deal with the debt when the economy has recovered. There's a reason why it's been done that way for a long time; because it works.
 
I see. And who is going to buy those bonds and at what rate and at what cost to the value of the Euro?

Everyone! A lower Euro means more exports means booming economies. Why the hell do you think Germany wants the Euro to survive? The problem with the Euro is Germany.. and their insane hatred towards printing money. With the exception of Greek tax income, most of the problems of the Euro zone would be solvable by simply printing money and devaluing the Euro. But that creates inflation... in theory... but considering inflation is very low... then well.

Plus you seem to be pretending that Greecesw problem is something other than its inability to amke payments on the loans it has already received. You will have to explain to me how it is that the solution for a country unable to pay its debts is to increase its debt burden.

Greece's problem is structural. IF people actually paid their taxes, then there would be a budget surplus. Problem is there is 60+% tax evasion in the country.

The recession ended 3 years ago.

And? Just because there is growth in a country does not mean that the effects of the recession are gone.. aint that what the Republicans are banking on to November?

Sure, borrowing now has its advantages. The trouble is, rates will not remain this low forever and everything borrowed today has to eventually be rolled over at higher rates. What you are saying is that inflation will helop you cheat your lenders out of recovering the full value of their loans. What you havent taken into consideration is that lenders understand this. That is why rates will rise.

Japan. Rates are at the lowest point in decades. UK, rates are the lowest rate in many decades. US, rates are at record lows. All 3 have near or wayyyyyy over 100% deb t to GDP. In Japan's case they have had over 100% debt vs GDP since the 1980s and yet their rates have been very low...
 
Wait...so you think austerity is making things better for Greece? Spain? Ireland is the closest thing to a success, but they've only just experienced their first quarter of growth, while we here in the US have had 11 straight quarters of growth. The UK's austerity program has resulted in 4 of their last 6 quarters shrinking and their highest quarter of growth post-recession is a mere 1/3 of what our best quarter has been.

It hasn't been a success anywhere. It results in slow growth or (worse) a return to recession, which (as we know) only makes debt grow due to lower tax receipts. That's why debt is growing in the countries who have instituted these policies instead of shrinking.
Stimulate first; then deal with the debt when the economy has recovered. There's a reason why it's been done that way for a long time; because it works.
the only problem with this is that governments - well at least that of the USA - continue the deficit spending once the economy rebounds
rather than retiring the accumulated debt, we do foolish things like giving more tax breaks to the rich and starting needless wars on the credit card
for a vivid example, notice what we did after clinton left office with a balanced budget
 
Borrowing and spending your way out of economic downturn, as much as it appeals to the left, is a recipe for disaster. It obviously did not work for socialist governments in Greece or elsewhere. When the money's all gone you wind up passing the hat around for donations. If you don't believe me, try it in your own personal finances. I might give you a buck if I pass by you panhandling and ranting about the injustice of banks on the street. Good luck!
 
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