Keynes Was Right

Keynes Was Right
By PAUL KRUGMAN
Published: December 29, 2011 686 Comments

“The boom, not the slump, is the right time for austerity at the Treasury.” So declared John Maynard Keynes in 1937, even as F.D.R. was about to prove him right by trying to balance the budget too soon, sending the United States economy — which had been steadily recovering up to that point — into a severe recession. Slashing government spending in a depressed economy depresses the economy further; austerity should wait until a strong recovery is well under way.

Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs, even though our economies had barely begun to recover from the slump that followed the financial crisis. And by acting on that anti-Keynesian belief, they ended up proving Keynes right all over again.

In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom. In Washington, in particular, the failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can’t create jobs. But those of us who did the math realized, right from the beginning, that the Recovery and Reinvestment Act of 2009 (more than a third of which, by the way, took the relatively ineffective form of tax cuts) was much too small given the depth of the slump. And we also predicted the resulting political backlash.

So the real test of Keynesian economics hasn’t come from the half-hearted efforts of the U.S. federal government to boost the economy, which were largely offset by cuts at the state and local levels. It has, instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps, with real G.D.P. in both countries down by double digits.

This wasn’t supposed to happen, according to the ideology that dominates much of our political discourse. In March 2011, the Republican staff of Congress’s Joint Economic Committee released a report titled “Spend Less, Owe Less, Grow the Economy.” It ridiculed concerns that cutting spending in a slump would worsen that slump, arguing that spending cuts would improve consumer and business confidence, and that this might well lead to faster, not slower, growth.

They should have known better even at the time: the alleged historical examples of “expansionary austerity” they used to make their case had already been thoroughly debunked. And there was also the embarrassing fact that many on the right had prematurely declared Ireland a success story, demonstrating the virtues of spending cuts, in mid-2010, only to see the Irish slump deepen and whatever confidence investors might have felt evaporate.

Amazingly, by the way, it happened all over again this year. There were widespread proclamations that Ireland had turned the corner, proving that austerity works — and then the numbers came in, and they were as dismal as before.

Yet the insistence on immediate spending cuts continued to dominate the political landscape, with malign effects on the U.S. economy. True, there weren’t major new austerity measures at the federal level, but there was a lot of “passive” austerity as the Obama stimulus faded out and cash-strapped state and local governments continued to cut.

Now, you could argue that Greece and Ireland had no choice about imposing austerity, or, at any rate, no choices other than defaulting on their debts and leaving the euro. But another lesson of 2011 was that America did and does have a choice; Washington may be obsessed with the deficit, but financial markets are, if anything, signaling that we should borrow more.

Again, this wasn’t supposed to happen. We entered 2011 amid dire warnings about a Greek-style debt crisis that would happen as soon as the Federal Reserve stopped buying bonds, or the rating agencies ended our triple-A status, or the superdupercommittee failed to reach a deal, or something. But the Fed ended its bond-purchase program in June; Standard & Poor’s downgraded America in August; the supercommittee deadlocked in November; and U.S. borrowing costs just kept falling. In fact, at this point, inflation-protected U.S. bonds pay negative interest: investors are willing to pay America to hold their money.

The bottom line is that 2011 was a year in which our political elite obsessed over short-term deficits that aren’t actually a problem and, in the process, made the real problem — a depressed economy and mass unemployment — worse.

The good news, such as it is, is that President Obama has finally gone back to fighting against premature austerity — and he seems to be winning the political battle. And one of these years we might actually end up taking Keynes’s advice, which is every bit as valid now as it was 75 years ago.

05-14-2012, 12:10 AM #6

Across the Atlantic in Europe, a different type of haircut has been debated. The Greek debt crisis is a catastrophic confluence of events. Internal mismanagement and external economic forces have resulted in a recession the depths of which a modern country has never seen. Private creditors (mainly banks) have grudgingly agreed to take a haircut of up to 78% of their debt, but only after they secured a recapitalization plan and only after an agreement was made to use bailout funds almost exclusively to shore up European banks instead of for assistance for the Greek people (read more about that tragedy here and here).

While the Greek government was used essentially as a pass-through to shore up the European banking system against a sovereign Greek default, Greek citizens watched as their social safety net was set on fire:

Greece, one of three eurozone nations to need an international bailout, has cut spending on just about everything it can — public sector salaries, pensions, education, health care and defense. As a result, unemployment has soared to over 21 percent, fueling social unrest that has sometimes turned deadly. In the last two years, riots have erupted frequently and the country's near-daily strikes and demonstrations have shut down schools, airports, train stations, ferries and harmed medical services.
If you ever wondered what Social Darwinism looks like, that's it.

Soros on Austerity in Europe

http://www.marketwatch.com/story/sor...me_latest_news

Jan. 25, 2012, 9:51 a.m. EST
Soros: Austerity fomenting Europe tensions
Germans have been traumatized by inflation, billionaire says
By Polya Lesova, MarketWatch



DAVOS, Switzerland (MarketWatch) — Billionaire investor George Soros warned on Wednesday that the austerity Germany wants to impose on other euro-zone nations “will push Europe into a deflationary debt spiral.”

Germans “have been traumatized by inflation and they don’t understand the threat that deflation can cause,” Soros told reporters at the annual meeting of the World Economic Forum in Davos. “There’s a shift in German thinking recognizing this isn’t working, but we’re quite far yet from abandoning this emphasis on inflation as the only threat to stability.”


The euro zone’s sovereign-debt crisis is a major topic this year, with German Chancellor Angela Merkel due to give the opening address this evening and European Central Bank President Mario Draghi set to speak later in the week.

Investors are closely watching talks between debt-laden Greece and private-sector creditors in which the two sides are trying to agree on a writedown of Greek debt that will be voluntary.

“The big issue is how does the euro cope with the danger of a Greek default,” Soros said. “Because that is something that is looming — it may or may not be avoided.”

Soros, an outspoken billionaire and philanthropist, gave a speech on the euro crisis and then took questions from reporters on a wide range of subjects, including China, the U.S., Russia, the Swiss franc and oil prices.

Soros, who has written a new book on financial turmoil in Europe and the U.S., said that measures taken by the European Central Bank in December have relieved the liquidity problems of European banks, but “they did not cure the financing disadvantage from which the highly indebted member states suffer.”

High risk premiums on Italian and Spanish bonds threaten the capital adequacy of banks and leave weaker euro-area nations “relegated to the status of third-world countries that became highly indebted in a foreign currency,” he said.


Instead of the International Monetary Fund, “Germany is acting as the taskmaster imposing tough fiscal discipline,” Soros said. “This will generate both economic and political tensions that could destroy the European Union.”

The billionaire investor said that fiscal discipline alone isn’t enough to solve the crisis and that the EU will have to provide stimulus to get out of the deflationary spiral. “This will require euro bonds in one guise or another,” he said.


Click on link at top of page to read whole article.

Soros on Austerity in Europe

http://www.marketwatch.com/story/sor...me_latest_news

Jan. 25, 2012, 9:51 a.m. EST
Soros: Austerity fomenting Europe tensions
Germans have been traumatized by inflation, billionaire says
By Polya Lesova, MarketWatch



DAVOS, Switzerland (MarketWatch) — Billionaire investor George Soros warned on Wednesday that the austerity Germany wants to impose on other euro-zone nations “will push Europe into a deflationary debt spiral.”

Germans “have been traumatized by inflation and they don’t understand the threat that deflation can cause,” Soros told reporters at the annual meeting of the World Economic Forum in Davos. “There’s a shift in German thinking recognizing this isn’t working, but we’re quite far yet from abandoning this emphasis on inflation as the only threat to stability.”


The euro zone’s sovereign-debt crisis is a major topic this year, with German Chancellor Angela Merkel due to give the opening address this evening and European Central Bank President Mario Draghi set to speak later in the week.

Investors are closely watching talks between debt-laden Greece and private-sector creditors in which the two sides are trying to agree on a writedown of Greek debt that will be voluntary.

“The big issue is how does the euro cope with the danger of a Greek default,” Soros said. “Because that is something that is looming — it may or may not be avoided.”

Soros, an outspoken billionaire and philanthropist, gave a speech on the euro crisis and then took questions from reporters on a wide range of subjects, including China, the U.S., Russia, the Swiss franc and oil prices.

Soros, who has written a new book on financial turmoil in Europe and the U.S., said that measures taken by the European Central Bank in December have relieved the liquidity problems of European banks, but “they did not cure the financing disadvantage from which the highly indebted member states suffer.”

High risk premiums on Italian and Spanish bonds threaten the capital adequacy of banks and leave weaker euro-area nations “relegated to the status of third-world countries that became highly indebted in a foreign currency,” he said.


Instead of the International Monetary Fund, “Germany is acting as the taskmaster imposing tough fiscal discipline,” Soros said. “This will generate both economic and political tensions that could destroy the European Union.”

The billionaire investor said that fiscal discipline alone isn’t enough to solve the crisis and that the EU will have to provide stimulus to get out of the deflationary spiral. “This will require euro bonds in one guise or another,” he said.


Click on link at top of page to read whole article.

Austerity backfires in Ireland and Europe - Sinn Fein rise up in polls


Sinn Fein's President Gerry Adams
Photo by AFP/Getty


Sinn Fein’s rapid rise in the polls in Ireland is a clear response to a massive austerity agenda that is backfiring on the current government there.

In an Irish Times poll last week the Sinn Fein vote vaulted into the low 20s, making them the second most popular party in Ireland after the major government party, Fine Gael.

The rapid rise in the Sinn Fein vote is due in the main to the continuing economic tsunami of bad debt and bad news that continues in Ireland.

New rates and water charges have been introduced and the average citizen, already beleaguered by the property collapse and the tight credit, is deeply feeling the effects of the crisis.

Sinn Fein, with a cadre of young front bench spokespersons and a clear attitude of deep skepticism towards Europe, is gaining heavily as a result.

The other main opposition party Fianna Fail, whose profligate policies got the country into the total mess, is understandably receiving very little uptick.

Events elsewhere in Europe will begin to impact on Ireland too. The likely outcome of the French election and the Dutch government collapse are all related to the same reality that the austerity measures enacted by the European Union are proving deeply unpopular and destructive.

Ireland has dutifully followed the German prescription that austerity and more austerity will lead it back to financial stability.

However, cutting wages and raising taxes while creating more unemployment is not the way to build out of a recession.

Deflation is a much more likely outcome of such policies as consumers have less and less to spend and economic growth is impossible to sustain.

The message from Ireland and elsewhere to German Chancellor Angela Merkel is that austerity as a long-term plan is not helping and that stimulus, not cutbacks, are the best way to address the problem.

It is a lesson Germany of all countries should certainly have learned from its own disastrous depression after the Treaty of Versailles which led them into massive debt and eventually led to the rise of Hitler.

There are many such rough beasts out there these days, even here in America, demanding deeper and deeper cuts to spending at the time when the exact opposite is needed in order to survive.

Ireland has remained remarkably calm, with none of the riots that have wracked Greece and Portugal and other countries.

That is to be welcomed, and the hope is that whatever issues arise in the next year or two will be dealt with in a physically non–confrontational way.

A major sea change may be about to take place in Europe over how the entire crisis is dealt with there. Ireland could well be at the forefront of that, a battle over the survival of the Euro and how long-term debt is paid back.

There is much at stake in the months ahead.



Read more: http://www.irishcentral.com/news/Aus...#ixzz1vFLSecOa

http://www.zerohedge.com/article/gre...end-game-appro


Greek Bonds Slump As Austerity Backfires, Country Enters "Death Spiral", And The Violent End Game Approaches
Submitted by Tyler Durden on 08/18/2010 12:58 -0400

Budget Deficit CDS China Germany Greece Gross Domestic Product International Monetary Fund Newspaper Purchasing Power Tax Revenue Turkey Unemployment


Those patiently following the Greek Bond-Bund spread to its inevitable conclusion have been fully aware that the plan that Europe is betting its entire future on, is patently flawed: namely that austerity, by its definition does not, and will not work. In fact, instead of bringing stability, austerity will slowly but surely eat away at the economy of whatever country it is instituted in - in some cases slowly, in others, like Greece, very rapidly. Indeed, the Greek spread has now risen to levels last seen during the early May near-revolution in Athens, at well over 800 bps. And for the specific consequences of austerity, Germany's Spiegel has done a terrific summary of what it defines as a "death spiral" for the Mediterranean country: "Stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places. Frustrated workers are threatening to strike back. A mixture of fear, hopelessness and anger is brewing in Greek society." Spiegel quotes a atypical Greek: ""If you take away my family's bread, I'll take you down -- the government needs to know that. And don't call us anarchists if that happens! We're heads of our families and we're desperate." All those who think violent strikes in the PIIGS are a thing of the past, we have news for you. The (pseudo) vacation season is over, and millions of workers are coming back. They may not have money, but they have lots of free time, lots of unemployment, and even more pent up anger. Things are about to get very heated once again, first in Greece, and soon after, everywhere else.

Keynes was right. :)

He was right. lol

http://www.washingtonpost.com/blogs/...g.html?hpid=z2
Romney lets his inner Keyensian out
By Jamelle Bouie
Earlier this year, while campaigning in Michigan, Mitt Romney made the mistake of expressing his inner Keynesian. “If you just cut, if all you’re thinking about doing is cutting spending, as you cut spending you’ll slow down the economy,” he said, earning the immediate scorn of anti-tax conservatives. From that point on, the former Massachusetts governor has been careful to hew to the GOP’s traditional line, reiterating the party’s belief that tax and spending cuts will lead to economic growth and new revenues. But in his recent interview with Time’s Mark Halperin — which you should read in full — he relies on Keynes to show why he wouldn’t commit to deep spending cuts in the first year of his administration:

Halperin: Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?

Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course. [Emphasis mine]

Now that Romney is the nominee, I’d be surprised if he received pushback from conservative activists for this rhetorical embrace of Keynesian logic. They may not like it, but they also want to win, and an attack would be counterproductive.

That said, this does raise questions about the dynamic between Romney and congressional Republicans if he’s elected president. Republicans are eager to implement the Ryan plan, and have made it the centerpiece of their domestic policy agenda. Romney is committed to the same agenda, but he also seems willing to pass the Ryan tax cuts and then delay the more radical elements, in order to maintain economic growth (and boost his popularity).

I have no doubt that party leaders and more typical Republicans would go along with this; they’re most concerned with cutting taxes on the rich, and spending cuts or not, I don’t think they would forgo the opportunity. But I can’t say the same for the more ideological Republicans who were elected in 2010, and nearly sparked a second recession out of pique with the administration. They seem to actually believe in the need for radical spending cuts, and it’s unclear whether they would go along with Romney’s plan to push cuts down the road. If the primary against Richard Lugar is any indication, the Tea Party is still unsatisfied with the orthodoxy of the GOP establishment, and its affiliated members might revolt against a package that doesn’t include a significant reduction in the size of government.

Romney Argues Big Spending Cuts Would Cause 'Depression,' Contrary To Tea Party Activists
Posted: 05/25/2012 1:24 pm Updated: 05/25/2012 3:32 pm



Republican House Speaker John Boehner and GOP Presidential nominee Mitt Romney have, in the course of the past week, pushed starkly different approaches to fiscal policy and economic recovery, a window into a broader rift within the GOP between the Tea Party and less absolutist conservatives.

Boehner, carrying the Tea Party line on spending, recently said that he would insist that the deficit be cut by a dollar for every dollar increase in the debt limit, or else he would refuse to raise it, helping drive the country toward default.

"When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase," Boehner said.

"Dealing with our deficit and our debt would help create more economic growth in the United States," Boehner told George Stephanopolous Sunday on ABC's "This Week." "The issue is the debt."

Romney, however, said that pushing drastic spending cuts during shaky economic times is a prescription for "recession or depression."

Asked by Time's Mark Halperin Wednesday why he wouldn't push major cuts in his first year, Romney responded with reasoning that would be largely uncontroversial if not for the past two years' mainstreaming of an economic philosophy that insists government spending actually costs jobs, rather than creates job.

"Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5 percent. That is by definition throwing us into recession or depression. So I'm not going to do that, of course," Romney said in an answer picked up by former bank regulator William Black, a HuffPost blogger.

Boehner, by contrast, said cutting spending will spur the economy by giving "certainty" to the business community. "It would lift this cloud of uncertainty that's causing employers to wonder what's next. So dealing with our debt and our deficit are critically important," he said.

Any spending cuts, Romney said, should come down the road, after the economy has improved.

"I don't want to have us go into a recession in order to balance the budget," he said. "I'd like to have us have high rates of growth at the same time we bring down federal spending, on, if you will, a ramp that’s affordable, but that does not cause us to enter into a economic decline."

Romney's reasoning accepts the basic premise that government spending adds to GDP and leads to economic growth, at least during times when consumer spending and private-sector demand is down.

The economic assertion is supported by the post-recession job creation numbers. Under President Obama, government spending has grown at its slowest rate since the Eisenhower Administration, according to Politifact. Predictably, that has led to a slower recovery and -- ironically for a president who called for belt-tightening as a political response to the Tea Party -- political trouble for his reelection.

In fact, adjusting for inflation, Obama has actually cut spending by 0.1 percent, according to a Politifact analysis.

While rival schools of economic thought have never agreed on each other's fundamental principles, over the past several decades, the notion that more government spending helps during a recession had gained broad acceptance. But it has been rejected by Tea Party members of Congress and conservative interest groups like the Club for Growth, who have bemoaned Obama's stimulus package and other efforts to boost the economy as job-killing government spending. Club for Growth declined to comment for this article.

The rhetorical thrust of a sharp distinction between the Tea Party's demand for big cuts and Obama's supposed propensity to spend has been a central tenet of the GOP's political messaging over the past two years. And Romney has run afoul of budget-cut purists before, recently over comments he made during a campaign stop in Michigan.

"If you just cut, if all you're thinking about doing is cutting spending, as you cut spending you'll slow down the economy," Romney said, according to MSNBC.

That comment prompted this response from Club for Growth lobbyist Andy Roth: "It's hogwash. It confirms yet again that Romney is not a limited government conservative."

But with Romney now the Republican Party's presumptive nominee for president, anti-government-spending groups are largely holding their fire. Dan Mitchell, senior fellow at the libertarian Cato Institute, told HuffPost that while many at his organization would prefer a "slash and burn" approach to federal spending, they could still accept the "glide path" proposed by Romney -- even if it does rely on "Keynesian" reasoning.

"Big spending cuts would be great," Mitchell said. "So Romney's rhetoric is worrisome. But if he is willing to restrain the growth of spending, so that it grows slower than the private sector, that would be a modest step in the right direction."

House Republicans -- as indicated by rhetoric like Boehner's -- seem less eager to compromise.

UPDATE: A Boehner spokesman said Friday that the speaker also recognizes the value of trimming over the longterm, noting that his recent speech included this passage:

Last fall, when I addressed the Economic Club of Washington, I said that making relatively small changes now can lead to huge dividends down the road in terms of debt reduction. As we approach the issue of the debt limit again, we need to continue to bear this in mind.
As you know, we could eliminate all of the unfunded liabilities in Social Security, Medicare and Medicaid tomorrow, and the effect within the Congressional Budget Office 10-year window could be minimal.

That’s because changes to these programs take time and are phased-in slowly.

For example, when Congress last increased the retirement age for Social Security, the increase – a mere two years – was scheduled to fully take effect 40 years after the law was enacted.

Another example: take the House Budget Resolution and its assumptions for Medicare reform. Those would not even begin until after 2022.

Smart and modest changes today mean huge dividends down the line.


http://www.huffingtonpost.com/2012/0...n_1545933.html

What's the definition of insanity? http://www.usdebtclock.org/

Bring on the recession. It is a correction after all.

Correction? "Something offered or substituted for a mistake or fault." Yeap, something needs to be fixed.... Just like Greece.

At least something will be fixed unlike what the criminal Barney Frank did to our nation.

Interview with economist Paul Krugman: 'Greece will leave eurozone within 12 months'

BEN CHU WEDNESDAY 30 MAY 2012

http://www.independent.co.uk/news/wo...s-7804753.html


New York Times
Gordon Brown
At last year’s Occupy Wall Street demonstrations in New York a superhero made his debut. He was a bearded figure called “Krug man”, who set about vanquishing the minions of the evil financial services empire with his fearsome “macro mallet”. The unlikely cartoon champion was based on Paul Krugman, the Nobel Prize winning economist.

In America, Krugman is the closest thing the economics profession has to a household name. His New York Times blog – which he uses to excoriate “austerian” politicians, arrogant European elites and economic folly in general – is one of the most popular sites on the web. Loath him or love him – and Krugman’s take-no-prisoners writing style has as many enemies as admirers · it is impossible to ignore him. And this week “Krug man” brought his battle for economic righteousness to the UK.

Speaking to The Independent today he was as forthright as ever. Krugman said he would be “astonished” if Greece managed to stay in the eurozone for longer than a year. The eurozone crisis was inevitable, he said, from the moment the Maastricht Treaty was signed in 1992. David Cameron is indulging in “wishful thinking” if he thinks Britain can cut its way back to growth. Oh, and a statue of Gordon Brown should be erected in Trafalgar Square to thank the former prime minister for keeping the UK out of single currency.

Will Greece leave the euro?

Something has to happen and in the end it does have to be a Greek exit. I’d be astonished if they can go more than two years without leaving. I’d be astonished if they could go even one year. The event that will force an exit is when the European Central Bank (ECB) puts a stop to the emergency lending to Greek banks. Nobody wants to do that but at some point the numbers will make that unavoidable. If I was a Greek depositor I’d be trying to shift money out of the banks because there’s a reasonable probability that, after a long weekend, you’ll find out that it has turned into a new drachma account worth 50 or 30 per cent less.

Would Greece actually be better off out?

The possibilities for a recovery are certainly there if Greece leaves. One of their major exports is tourism. Greece could exits creating a very ugly scene for six months or a year, but after that there’s tons of package tours of British lager louts going to the Greek isles. It sounds awful, but compared with 50 per cent youth unemployment, maybe not so bad. But there’s no certainty. Anyone who says I’m highly confident Greece would do well in the three years following devaluation – I don’t know that. But it’s not as if Greece is on a sustainable path now.

Should the rest of us fear the consequences of a Greek exit?

Greece essentially doesn’t matter except in terms of the knock-on effects on the eurozone. If Greece exits then we know that euro membership is non-irreversible. You then have a run on Spanish and Italian banks. That does not have to lead to an immediate crisis so long as the ECB is willing to supply the euros. But that also raises the question: where is the hope for recovery for those countries? They are also in an unsustainable situation unless there’s a change in policy that gives them a reasonable hope of a recovery in a five year period. So there’s a fork in the road. Will we see more ECB lending plus more expansionary fiscal policy and higher inflation targeting? Or will it be a complete eurozone break up? Both alternatives sound impossible but one of them has to happen. What will Germany in the end choose? It’s not Sophie’s Choice, but Germany’s choice.

Who should be held responsible for the eurozone crisis?

I think that the die was cast and the whole thing was pretty much fated from the moment the Maastricht Treaty [which paved the way for the single currency] was signed in 1992. Practically the entire European elite wanted that. There’s no one person who said: “Full speed ahead let’s do this”. Maybe the original sin goes all the way back to the European Coal and Steel Community [the first institution of European unity from 1952]. It was something that kind of had to happen.

David Cameron says austerity vs growth is a false choice. Is he right?

There is a choice. You could have a policy which is for austerity later but expansion now, but that’s not what he’s saying. No; if the Government is going to join in the private sector deleveraging [rapid deficit reduction] that’s going to harm the economy. The notion that you can somehow fudge that is wishful thinking.

We can all hold various opinions of Mr. Krugman. That's fine.
Scientifically, opinions mean squat. What do studies tell us?

http://www.poynter.org/latest-news/m...t/#more-130485

http://notesandrestsmakemusic.wordpr...erving-degree/

Now, why do the Conservatives get it wrong all the time, but are still considered worth listening to at all? Simple. It's confirmation bias. If you are reading this and are Conservative, chances are, you have already rejected it. It does not match your preconceptions, and therefore must be discounted. Besides it references science- and we all know about that elitist stuff.
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http://www.huffingtonpost.com/2012/0...n_1562685.html

On ABC’s “This Week” Sunday, Paul Krugman noted that government spending per capita has gone down to the lowest point since the 1950s, and that as a result the country has actually entered a time of austerity much like what Republicans are calling for. “The bitter irony,” Krugman says, is that in light of the struggling economy, “it may lead to the defeat of this president.”

“This is real government spending, so it’s federal, state and local combined, deflated, you know, adjusted for population growth and inflation, and it is plunging,” Krugman said, citing cuts on the state and local level are largely to blame for the problem.

We’re actually practicing government austerity on a scale that we haven’t seen in 60 years. It’s not the president’s policy. In effect, we’ve already got the policies that Republicans say they will impose if they take the election, and yet, of course, it may lead to the defeat of this president.

TPMDC
Krugman: Reagan Was More Keynesian Than Obama


http://tpmdc.talkingpointsmemo.com/2...-economics.php
SAHIL KAPUR JUNE 3, 2012, 12:55 PM 541
President Reagan’s policies embraced anti-austerity Keynesian economics to a greater degree than President Obama has, and that’s why Obama is in trouble, argues Nobel Prize-winning economist Paul Krugman.

Appearing Sunday on ABC’s “This Week,” the New York Times columnist and Princeton professor argued that Reagan was able to reduce unemployment after taking office in part because he grew government jobs — unlike Obama, who has significantly cut them.

“If you actually look at the actual track record of government spending, government employment, Reagan is the Keynesian and Obama — mostly because of political constraints, although a little bit of lack of conviction on the part of his own people — has been the anti-Keynesian,” Krugman said. “He’s been the one who’s been doing what Republicans say is the right answer.”

Just over three years into Reagan’s first term, government jobs grew by 3.1 percent; at the same time during Obama’s tenure, they’ve been cut by 2.7 percent. Hundreds of thousands of public sector jobs have been shed in recent years. Government jobs also grew under President George W. Bush, which helped keep unemployment down during most of his two terms.

“After there was a recession under Ronald Reagan, government employment went way up. It went up after the recessions under the first George Bush and the second George Bush,” Obama said last month on the campaign trail. “So each time there was a recession with a Republican president, compensated — we compensated by making sure that government didn’t see a drastic reduction in employment. The only time government employment has gone down during a recession has been under me.”

More broadly, federal spending growth under Obama has been remarkably low by historical standards. The pressure from the GOP and D.C. political elites, who have been hostile to Keynesian economics in recent years, has put the administration in a tough spot.

The Keynesian theory holds that government spending is necessary help lift the economy when it’s under-performing. Data shows that Republicans tend to accept it when they’re in power and that they benefit from it. But they’ve relentlessly attacked Obama’s efforts to stimulate the economy in the wake of the Great Recession, and have led the charge against financially helping cash-strapped states avert layoffs of public employees like teachers and police.

And that has fueled economic struggles across the nation, which were confirmed by the lousy jobs report last Friday which saw the unemployment rate tick up to 8.2 percent.

The irony of the situation wasn’t lost on Krugman.

“We’re actually practicing government austerity on a scale that we haven’t seen in 60 years. It’s not the president’s policy,” he said Sunday. “In effect, we’ve already got the policies that Republicans say they will impose if they take the election, and yet, of course, it may lead to the defeat of this president.”

OP-ED COLUMNIST
This Republican Economy
By PAUL KRUGMAN
Published: June 3, 2012 645 Comments


What should be done about the economy? Republicans claim to have the answer: slash spending and cut taxes. What they hope voters won’t notice is that that’s precisely the policy we’ve been following the past couple of years. Never mind the Democrat in the White House; for all practical purposes, this is already the economic policy of Republican dreams.

So the Republican electoral strategy is, in effect, a gigantic con game: it depends on convincing voters that the bad economy is the result of big-spending policies that President Obama hasn’t followed (in large part because the G.O.P. wouldn’t let him), and that our woes can be cured by pursuing more of the same policies that have already failed.

For some reason, however, neither the press nor Mr. Obama’s political team has done a very good job of exposing the con.

What do I mean by saying that this is already a Republican economy? Look first at total government spending — federal, state and local. Adjusted for population growth and inflation, such spending has recently been falling at a rate not seen since the demobilization that followed the Korean War.

How is that possible? Isn’t Mr. Obama a big spender? Actually, no; there was a brief burst of spending in late 2009 and early 2010 as the stimulus kicked in, but that boost is long behind us. Since then it has been all downhill. Cash-strapped state and local governments have laid off teachers, firefighters and police officers; meanwhile, unemployment benefits have been trailing off even though unemployment remains extremely high.

Over all, the picture for America in 2012 bears a stunning resemblance to the great mistake of 1937, when F.D.R. prematurely slashed spending, sending the U.S. economy — which had actually been recovering fairly fast until that point — into the second leg of the Great Depression. In F.D.R.’s case, however, this was an unforced error, since he had a solidly Democratic Congress. In President Obama’s case, much though not all of the responsibility for the policy wrong turn lies with a completely obstructionist Republican majority in the House.

That same obstructionist House majority effectively blackmailed the president into continuing all the Bush tax cuts for the wealthy, so that federal taxes as a share of G.D.P. are near historic lows — much lower, in particular, than at any point during Ronald Reagan’s presidency.

As I said, for all practical purposes this is already a Republican economy.

As an aside, I think it’s worth pointing out that although the economy’s performance has been disappointing, to say the least, none of the disasters Republicans predicted have come to pass. Remember all those assertions that budget deficits would lead to soaring interest rates? Well, U.S. borrowing costs have just hit a record low. And remember those dire warnings about inflation and the “debasement” of the dollar? Well, inflation remains low, and the dollar has been stronger than it was in the Bush years.

Put it this way: Republicans have been warning that we were about to turn into Greece because President Obama was doing too much to boost the economy; Keynesian economists like myself warned that we were, on the contrary, at risk of turning into Japan because he was doing too little. And Japanification it is, except with a level of misery the Japanese never had to endure.

http://www.nytimes.com/2012/06/04/op...nomy.html?_r=1

And thats not even discussing what happened to our economy under President Bush. :)