Tags: Krugman | Conservative | Policies | Medieval

Krugman: Conservative Economic Policies are ‘Medieval’

Monday, 07 May 2012 01:14 PM

Conservative fiscal policies calling for belt-tightening austerity measures amid slumping economic times do more harm than good and often make a sick economy even sicker, says Nobel economist Paul Krugman.

In the United States and in Europe especially, debt-ridden economies are under pressure to trim deficits via policies such as layoffs and other measures that Krugman finds counterproductive.

Fiscal austerity cuts into productivity, which is what ailing economies need to grow and create jobs even if that productivity is stemming from the public sector.

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Doing so will pump more tax revenues back into the government down the road.

"Austerity is self-defeating, even in purely fiscal terms," Krugman tells Reuters The Freeland File in an interview.

"We are really very much like medieval doctors who thought that the treatment for illness was to bleed you, and when the patients got sicker, they bled them even more. We're doing incredibly destructive stuff that is not working."

The U.S. has avoided spiraling into a debt crisis since the government can borrow in its own currency to finance itself.

Many criticize such policies as inflationary, indebting and even call for printing money out of thin air, although Krugman points out similar policies elsewhere in the world never ended up in economic collapse while fighting unemployment should take priority over paring down deficits, which can wait.

"People have been calling the imminent Japanese debt crisis for a dozen years, at least, and people who have invested on that basis have lost scads of money," Krugman says.

"People try to use deficit scares to implement an agenda. It's amazing how many deficit hawks have as their first item in their deficit-reduction plan is to cut taxes on rich people. There is a lot of insincerity there," Krugman adds.

"I would say shelf the deficit reduction program."

In the meantime, expect politics to continue getting in the way of progress in the U.S.

"The Democrats want a mixture of taxes and spending, the Republicans want spending cuts and tax cuts, too. Fighting that battle means you are spending a lot of time not very productively and meanwhile, 3.9 million Americans have been out of work for more than a year."

"That should be overwhelmingly our priority. We should be focusing on the clear and present danger and not wasting a lot of time on issues about what might happen well down the pipeline."

In April, the economy added a net 115,000 jobs, way below expectations.
Still, the U.S. economy continues to show signs of recovery.

Auto sales are up, bank credit is improving and the housing sector is showing some hints of stabilizing, says Marisa Di Natale, an economist at Moody’s Analytics in West Chester, Pennsylvania.

"From where we sit right now, we think the economy looks fundamentally stronger," Di Natale says, according to Bloomberg.

"Surveys of business and consumer confidence are better, the labor market data looks a lot better than it did last year, even some of the housing data looks better."

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2012-14-07
Monday, 07 May 2012 01:14 PM
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