Paul Krugman: 'I'm sick of being Cassandra. I'd like to win for once'The American economist has a plan to escape the financial crisis, and it doesn't involve austerity measures or deregulating the banks. But will policy-makers, including our coalition government, heed his advice?
Decca Aitkenhead guardian.co.uk, 3 June 2012
By now you will probably have read an awful lot about the financial crisis. Perhaps I've been reading all the wrong stuff, but until now I hadn't managed to find answers to the most puzzling questions. If the crash of 2008 was preceded by an era of unprecedented prosperity, how come most of the people I know weren't earning much?
Deregulation of financial services was supposed to have made us all better off, so why did most of us have to live off credit to keep up? Now that it has all gone wrong, and everyone agrees we're in the worst crisis since the Great Depression, why aren't we following the lessons we learned in the 1930s?
President Obama is the only world leader who has attempted a Keynesian stimulus programme. Why has it been only minimally effective? Why do most other western leaders still insist the only way out is to tighten our belts and pay off our debts, when that clearly isn't working either? And how come the bankers, credit agencies and bond traders are still treated with cowed reverence – don't frighten the markets! – when they got us into this mess?
These mysteries were beginning to make me feel as if I must be going mad – but since reading Paul Krugman's new book, I fear I'm in danger instead of becoming a bore. It's the sort of book you wish were compulsory reading, and want to quote to anyone who'll listen, because End This Depression Now! provides a comprehensive narrative of how we have ended up doing the opposite of what logic and history tell us we must do to get out of this crisis.
Its author is a Nobel prize-winning economist who writes a column in the New York Times and teaches economics at Princeton University. An authority on John Maynard Keynes, Krugman wrote a book in 1999 called The Return of Depression Economics, largely about the Japanese slump, which drew ominous parallels between Japan's economic strategy and the pre-New Deal policies of the early 30s that turned arecession into catastrophic depression. At the time, unsurprisingly, most western economists weren't bowled over; in thrall to the seemingly endless boom, the Great Depression looked to them to be more or less irrelevant. Krugman's latest book will be much harder to ignore.
He doesn't expect it will be an easy message to sell, though. "As far as I can make out, the serious opposition to the coalition's policy is basically a half-dozen economists, and it looks as if I'm one of them – which is really weird," he laughs, "since I'm not even here." Visiting London last week, he met lots of what he calls Very Serious People: "And there are lots of things these people say that sound very wise and sensible. But it's all upside-down; it's all wrong. Yet the power of their orthodoxy – even when it's failing – is quite awesome."
These Very Serious People present economics as a morality play, in which debt is a sin, and we have all sinned, so now we must all pay the price by tightening our belts together. They tell us the crisis will take a long time to resolve, and must inevitably be painful. All of this, according to Krugman, is the opposite of the truth. Austerity is a self-imposed collective punishment that is not just unnecessary, but won't work. We know what would work – but for complex political and historical reasons that his book explores, we have chosen to forget. "Ending this depression," he writes, "should be, could be, almost incredibly easy. So why aren't we doing it?" more
Paul Krugman, European celebrityIn the United States, Krugman writes a newspaper column. In Europe, his ideas make headlines
BY STEVE WEISSMAN AND FRANK BROWNING JUN 2, 2012
Paul Krugman is not a name you’d expect to see plastered onto the sides of Madrid’s buses. But last we heard, his Spanish publisher was planning to use the rolling billboards to sell the Nobel laureate’s new book, “End This Depression Now.” Titled “¡Acabad ya con esta crisis!” in Spanish, it’s already in its fourth printing in a country where more than 50 percent of workers under 25 cannot find a job. They know firsthand why Krugman calls it “economic suicide” to cut public spending massively when the economy is taking a nosedive. Germans, who tend to see such cuts as only prudent, are also reading Krugman, often with distaste, while the British have put him front and center as the queen floats down the Thames for her diamond jubilee and ordinary blokes wonder why their economy has sunk into a double-dip recession.
Like Americans, Europeans either love or hate our rock-star economist, but his reception on their side of the Atlantic drives home a hard truth that few aside from Krugman have bothered to tell. Eurodämmerung, as he calls it, came to Spain and Ireland neither from public extravagance nor from Goldman Sachs fiddling the accounts with credit default swaps, but from genuine efforts to bail out over-indebted private banks sucked in by low-interest loans from German and American lenders. Easy money and European Union grants to build motorways were the euro’s early blessings. The curse came only after Wall Street wrecked the world’s financial system by selling derivatives based on shaky subprime mortgages.
For Krugman, Spain is “the emblematic euro crisis economy,” where huge inflows of easy money fed an unprecedented housing bubble aimed significantly at British tourists and retirees. It tasted good, pushing more euros into workers’ pockets and booming tapas bars — until the global collapse. That’s when Spaniards discovered how the artificial boom had made their country uncompetitive. Trapped in a currency they could not devalue, they had no easy way to cut their prices and make their products, workers and vacation spots more attractive. Krugman tells the story clearly and sympathetically, which makes him highly popular with Spaniards. They read his columns in one of the country’s leading newspapers, El País, and find his pronouncements in headline stories throughout the media. He is, as one unhappy right-winger put it, a guru becoming superguru. more