Sunday, January 27, 2013

Paul Krugman: Deficit Scolds Have Lost Influence

After noting with approval that President Obama barely mentioned the deficit in his inaugural address, Paul Krugman provides four reasons the “deficit scolds” no longer control the political dialogue. Among them are failed predictions, declining deficits, failed economic austerity policies–and the hidden political agenda of conservative economic austerity pushers to benefit the rich at everyone else's expense:

They’ve spent three years warning of imminent crisis — if we don’t slash the deficit now now now, we’ll turn into Greece, Greece, I tell you... But that crisis keeps not happening. The still-depressed economy has kept interest rates at near-record lows despite large government borrowing, just as Keynesian economists predicted all along. So the credibility of the scolds has taken an understandable, and well-deserved, hit.

Second, both deficits and public spending as a share of G.D.P. have started to decline — again, just as those who never bought into the deficit hysteria predicted all along.

...the third reason the deficit scolds have lost influence: the contrary doctrine, the claim that we need to practice fiscal austerity even in a depressed economy, has failed decisively in practice... In 2010, when the new government of Prime Minister David Cameron turned to austerity policies, it received fulsome praise from many people on this side of the Atlantic... Sure enough, the sudden, severe medicine cut short Britain’s economic recovery, and threw the nation back into recession.

...there was also clearly a lot of bad faith involved, as the scolds tried to exploit an economic (not fiscal) crisis on behalf of a political agenda that had nothing to do with deficits. And the growing transparency of that agenda is the fourth reason the deficit scolds have lost their clout.

What was it that finally pulled back the curtain here? Was it the way the election campaign revealed Representative Paul Ryan, who received a “fiscal responsibility” award from three leading deficit-scold organizations, as the con man he always was? Was it the decision of David Walker, alleged crusader for sound budgets, to endorse Mitt Romney and his budget-busting tax cuts for the rich? Or was it the brazenness of groups like Fix the Debt — basically corporate C.E.O.’s declaring that you should be forced to delay your retirement while they get to pay lower taxes?

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