Tags: Krugman | Europe | policymakers | economic

Krugman: Europe's Economic Problem Is Its Policymakers

By    |   Tuesday, 21 April 2015 06:00 AM EDT

While the U.S. economy is enjoying at least a sluggish recovery from the 2008 financial crisis, Europe remains stuck in the muck.

Some say standard economic theory is inadequate to address the crisis, but Nobel laureate economist Paul Krugman disagrees.

"Basic textbook models, reflecting an approach to recessions and recoveries that would have seemed familiar to students half a century ago, have performed very well," he writes in The New York Times.

"The trouble is that policymakers in Europe decided to reject those basic models in favor of alternative approaches that were innovative, exciting and completely wrong."

For years Krugman has criticized those policymakers for adopting austerity to address the financial crisis. The eurozone economy grew only 0.9 percent last year, while the U.S. economy expanded 2.4 percent.

"What stands out from around 2010 onward is the huge divergence in thinking that emerged between the United States and Europe," Krugman explains.

"In America, the White House and the Federal Reserve mainly stayed faithful to standard Keynesian economics. In Europe, by contrast, policymakers were ready and eager to throw textbook economics out the window in favor of new approaches," he adds.

"It's hard to argue against new ideas in general. In recent years, however, innovative economic ideas, far from helping to provide a solution, have been part of the problem. We would have been far better off if we had stuck to that old-time macroeconomics, which is looking better than ever."

Meanwhile, former White House budget director David Stockman criticizes Europe from the other side, lambasting the European Central Bank (ECB)'s monetary stimulus.

ECB President Mario Draghi insisted this week that the central bank's monthly bond purchases of 60 billion euros ($65 billion) will continue.

Stockman's take: "it is tempting to think that Mario Draghi is being paid off by someone," he writes on his blog. "But a project this monumentally stupid may be just that. To wit, the work of a monumentally stupid man."

Stockman's not too impressed with Europe's soaring bond markets. "The geniuses at the ECB are not cornering the market. They are being cornered by the speculators who are recklessly front-running the central bank with their trigger finger on the sell button," he states.

"Everything in the European fixed income market is now so wildly over-priced and disconnected from reality that the clueless fools in Frankfurt dare not stop."

The 10-year German government bond yields 0.07 percent

Bottom line: "this is a house of cards like no other," Stockman declares.

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While the U.S. economy is enjoying at least a sluggish recovery from the 2008 financial crisis, Europe remains stuck in the muck.
Krugman, Europe, policymakers, economic
Tuesday, 21 April 2015 06:00 AM
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