DEBATING POLITICS, ECONOMICS AND OTHER TIMELY TOPICS WITH PAUL KRUGMAN OF THE NEW YORK TIMES

FRIDAY, MAY 15, 2015

PAUL KRUGMAN

BACKSTORY

Welcome to the Era of Stop-Go Austerity

Britains
Conservative
Mandate

Sometimes good things happen to bad

ideas. Actually, it happens all the time.
Britains election results came as a surprise, but they were consistent with the
general proposition that elections hinge
not on an incumbents overall record, but
on whether things are improving in the six
months or so before the vote. Prime Minister David Cameron and company imposed
austerity for a couple of years and then
they paused, and the economy picked up
enough during the lull so that they could
make the same mistakes all over again.
Theyll probably seize that chance. And
given the continuing weakness of Britains
fundamentals high household debt, a
soaring trade deficit, etc. theres a good
chance that the resumption of austerity will
usher in another era of stagnation. In other
words, the recovery of 2013-2015, which is
falsely viewed as a vindication of austerity,
is likely to prove self-defeating.
Theres a somewhat similar problem in
the eurozone, as Barry Eichengreen, an
economist at the University of California,
Berkeley, noted recently. There, too, growth
has picked up, thanks to quantitative easing, a weaker euro and a pause in austerity.
The policies that pulled Europe back from
the brink were made politically possible by
fear first of collapse, then of deflation.
But as the fear abates, so does pressure
to change Europes ways; austerians are
already claiming the pickup as vindication,
not of European Central Bank President
Mario Draghis activism, but of the policies
that made that activism necessary.
Obviously, my pessimism could be all
wrong. If the private sector in Britain or in
the eurozone has more oomph that I think,
growth will continue, even with policy backsliding. But my guess is that were looking
at an era of stop-go austerity, in which politicians who refuse to learn the right lessons
from history doom their citizens to repeat it.

LUKE SHARRETT/THE NEW YORK TIMES

British Prime Minister David Cameron won a second term this month after the Conservative Party secured a majority in Parliament.

READER COMMENTS FROM NYTIMES.COM

themselves in the two weeks leading

up to the evaluations.
I did not want to play that game, so
I moved on to another line of work.

Asking for More of the Same

As an Anglophile, I am amazed
that people in Britain act like people in Kansas: In the face of bad results, they beg for more of the same.
BILL, WISCONSIN

Its worth remembering that the

Labour Partys election manifesto
included a promise to cut the deficit
every year. In other words, Labour
promised austerity just like the Conservative Party did, but used slightly different language. So did British
voters really have a choice?
LARS MARIUS GARSHOL, NORWAY

Austerity politics is symptomatic of a broader issue. Over and

over, large numbers of people

from all educational levels and
backgrounds consistently vote for
policies that relate to individual (as
opposed to collective) responses to
problems, which are generally the
domain of the political right.
I dont know the fundamental
reasons for this mindset, although I
am strongly, if only anecdotally, convinced that feelings of insecurity are
a strong driver.
On top of that, the political right
uses time-tested, positive-sounding
slogans that allow one to feel good
about oneself. For example, you
dont have to actively say that you
hate poor people, or to defend such a

A.B., OREGON

position. But you can support fiscal

responsibility, which, in practice,
codifies support for policies that
work against the poor in our society.
D.M., MASSACHUSETTS

Mr. Krugman, you write that

elections hinge not on an incumbents overall record, but on
whether things are improving in the
six months or so before the vote.
This reminds me of my time as an
assistant professor. I was teaching
my first classes and had received
less-than-stellar evaluations from
students. So the department chair
took me aside and told me that I had
to make the students feel good about

I am very glad that our present

government in Portugal followed
the austerity measures imposed
by the troika of creditors.
The economy is growing again,
the deficit has decreased and the unemployment rate has dropped.
Unfortunately, our previous prime
minister borrowed heavily to continue public investments in order to
boost the economy, a move that was
based on your theories, Mr. Krugman. So now we have a huge debt to
deal with.
MARIA PERRY, PORTUGAL

I totally agree with the idea of

stop-go austerity. Spains experi-

ence is a prime example of this

austerity phenomenon in Europe.
Austerian policies were introduced there years ago, which led to
a sharp decline in gross domestic
product and an explosion in the unemployment rate.
Later, the government, confronted
by about 6 million unemployed
Spaniards, decided to change course
and end those austerity programs.
The economy surged as a result.
Wrong ideas persist in Europe, despite the bad experiences weve had.
RUI ALMEIDA, PORTUGAL

ONLINE: COMMENTS
Comments have been edited for clarity
and length. For Paul Krugmans latest
thoughts and to join the debate online,
visit his blog at krugman.blogs.
nytimes.com.

Earlier this month, Britains

Conservative Party stunned analysts with a landslide victory in
parliamentary elections, despite
the fact that pre-election polls
had shown for weeks that Conservatives were tied with the Labour Party.
Since 2010, Britain has been
governed by a coalition of Conservatives, led by Prime Minister David Cameron, and centrist Liberal Democrats. Early
in its tenure, the coalition enacted harsh austerity measures that
many economists believe plunged
the nation into a recession. During this time, the Conservatives
trailed the Labour Party in opinion polls sometimes by substantial margins.
In recent years, though, the
pace of spending cuts has slowed,
and the countrys central bank
has lowered interest rates and
pursued a policy of quantitative
easing, both of which have contributed to modest economic
growth in Britain.
When I stood here five years
ago our country was in the grip
of an economic crisis, Mr. Cameron said after the election. Five
years on, Britain is so much
stronger, but the real opportunities lie ahead.
The strength of the Conservative Partys recent victory will
now allow it to govern with an outright majority and enact the partys preferred economic policies
without the need for compromise.
According to news reports, Conservatives intend to enact more
austerity measures, including several that their centrist coalition
partners had previously blocked.
Mr. Cameron and his chancellor of the Exchequer, George Osborne, have also laid out plans
for continued spending cuts to
bring down the big budget deficit
and the national debt, wrote Steven Erlanger in a news analysis
in The New York Times, promising a fully balanced budget by
the end of the next Parliament in
2020. Without a formal coalition
partner, the party can do roughly
what it pleases, so long as it does
not suffer any backbench revolt.

PAUL KRUGMAN

Alan Greenspan, Fearmonger

BATEUP/ADVERTISER - ADELAIDE, AUSTRALIA/CARTOON ARTS INTERNATIONAL/THE NEW YORK TIMES SYNDICATE

READER COMMENTS FROM NYTIMES.COM

A Conservative in Denial
Once again, Mr. Krugman,
youve nailed it. Alan Greenspan
President Reagans darling and
a high priest among Ayn Rand devotees was quick to blame everyone
else for the 2008 implosion, and he
still wont accept that free-market
magic isnt real.
NAME WITHHELD, CALIFORNIA

In my younger years, I was enthralled by the reputation of Mr.

Greenspan.
I recall reading a biography that
showcased some of the orthodox and
effective things that he did while

acting as chairman of the Federal

Reserve. Mr. Greenspans career
seems to show how ideological blindness can make someone who was
once an effective practitioner commit grievous errors in judgment.
BENJAMIN STOCKTON, CALIFORNIA

In Washington, nothing succeeds like failure.

FRANK MCNEIL, FLORIDA

Any connection to the Ayn Rand

cult should be enough to disqualify someone from even being considered for the Federal Reserve Board

When Alan Greenspan left the

Federal Reserve in 2006, he had
nearly divine status in the eyes of the
financial press and, Im sorry to say,
quite a few economists. Since then,
of course, the former chairmans
reputation has faltered badly.
Whether or not you blame Fed
policy for the housing bubble (you
shouldnt), Mr. Greenspan denied
the bubbles existence, even as it was
inflating, while actively blocking efforts to tighten financial regulation.
But its his track record since leaving office that is truly remarkable.
Mr. Greenspan has been an inflation
and debt fearmonger, helping to
make his successors already hard
job even harder and he famously
complains about ungrateful markets
that keep failing to deliver the crises
he predicts.
After a brief moment of doubt
about the wisdom of financial markets, Mr. Greenspan has gone right
back to denouncing regulation, while

proclaiming that markets get it right

with notably rare exceptions.
I currently have in my inbox a notice that as the Fed holds its annual
meeting in Jackson Hole, Wyo., later
this year, Mr. Greenspan will address
a counterconference organized by a
group called the American Principles
Project. The organization combines
social conservatism anti-gaymarriage, anti-abortion rights, proreligious liberty with goldbug
economic doctrine.
The second half of the groups
agenda may be appealing to Mr.
Greenspan, a former Ayn Rand intimate. As the late economist Paul
Samuelson once remarked: You
can take the boy out of the cult, but
you cant take the cult out of the boy.
But the antigay stuff? And helping
these people attack his former colleagues at the Fed? Awesome.

or, for that matter, any public office,

especially on a national level.

correctly. They keep doing the same

thing over and over, yet they expect
a different result.

J.M.C., CONNECTICUT

Bernanke and the Inflationistas

Ben Bernanke, the former chair-

RICHARD F., COLORADO

George W. Bush was also

granted divine status by the right
wing at the beginning of his tenure
as president. But after he implemented the exact economic policies
that conservatives wanted and the
economy crashed, as many people
predicted it would, Mr. Bushs divinity status dropped as fast as the
stock market.
When conservatives gain the
power to actually implement the
policies they favor, and the results
are every bit as horrific as sane people predicted, they always point the
finger at one individual, or claim that
their policies werent carried out

Mr. Greenspans problem was

that he believed in his own infallibility, so he failed to see the housing
bubble and the other problems in the
economy as they developed. And
what did he leave us? The worst economic collapse since the Depression.
His successor, Ben Bernanke, was
selected to pick up the pieces, just
like President Obama was elected to
undo the Bush-Cheney wars.
NAME WITHHELD, CALIFORNIA

Mr. Bernanke is correct to

criticize The Wall Street Journals
editorial page, as there is good

man of the Federal Reserve, recently delivered a righteous smackdown

of the Wall Street Journals editorial
page: Its generous of the W.S.J.
writers to note, as they do, that
economic forecasting isnt easy,
he wrote on his Brookings Institution blog. They should know, since
The Journal has been forecasting a
breakout in inflation and a collapse
in the dollar at least since 2006, when
the [Federal Open Market Committee] decided not to raise the federal
funds rate above 5-1/4 percent.
It has taken Mr. Bernanke almost
no time in his blogging career to
start sounding pretty much identical
to liberal econobloggers like Brad
Delong and others one might
think of!
And of course Mr. Bernanke is
right that The Wall Street Journal
has been consistently wrong on
inflation, just as it has been consistently wrong on interest rates. The
Journal has spent a very long time

evidence that it is the worst of the

right-wing noise machines.
The Journals editorial writers
have been consistently wrong and
occasionally malicious on many issues (and people) over the last quarter of a century. They are far from
alone in this, but they have arguably
done more damage to the country
than any other voice from the right.
MATT GUEST, WASHINGTON, D.C.

Mr. Bernanke, who is wealthy,

compared to most Americans, has
decided to work for a hedge fund.
So why should I trust anything he
says? Are you really going to tell me
that he is not influenced by the very
large amounts of cash given to him
by his employers?
EZRA ABRAMS, MASSACHUSETTS

peddling a specific kind of scare

story debt! printing presses!
Zimbabwe! that has been utterly
wrong, but is never revised.
But whats interesting here is that
The Journal is far from alone in peddling this story its also the staple
of financial television shows and
many financial publications. After
all these years, there are still avid
consumers of complete predictive
failure.
We really need to stop pretending that this story has anything to
do with rational argument. Theres
something about inflation derp
that goes straight to the ids of certain people largely, one suspects,
angry old men (though it would be
nice to have hard evidence about
exactly which demographic derp appeals to).
And they will keep regarding The
Journal as the place to get the truth
no matter how much money it costs
them.

Paul Krugman
joined The New
York Times in 1999
as a columnist on
the Op-Ed page
and continues
as a professor of
economics and
international
affairs at Princeton
University. He was awarded the
Nobel in economic science in 2008.
Mr. Krugman is the author or editor
of 21 books and more than 200
papers in professional journals and
edited volumes. His latest book is
End This Depression Now!