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A Blatant Lie About Austerity

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March 25, 2011 – Comments (7)

Call it a form of self-mutilation, but I keep going back to the NY Times to read Paul Krugman.  And his latest article starts off with a blatant lie: "Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong."

http://www.nytimes.com/2011/03/25/opinion/25krugman.html?_r=1&ref=opinion

Since the entire premise of the article is based upon this lie, everything in the article is a complete waste of a thinking persons time.

EVERY austerity advocate has argued that there would be a period of painful decline - 18 months to 2 years.  The fact that Krugman names NO economist advocating austerity in his column is either proof he is blatantly lying or proof that he is entering an early stage of senility.  If he understood Austrian economics, he would realize that austerity would put a country "on the path to recovery".  That path includes a SHARP decline in prices, higher unemployment and economic pain as the system cleanses itself.

Think about a heroin addict.  He's got to quit and he's got to go through withdrawal symptoms.  Those withdrawal symptoms are PAINFUL.  Krugman is advocating to keep the heroin flowing, but slowly wean ourselves off the high debts when we are "back to normal".  Of course THAT will cause withdrawal symptoms (aka: recession) and he'll be back on his bandwagon telling us that when in a recession, we have to take on more debt.

I disagree with some Austrian economist who believe there will be a sudden change of faith where dollar confidence is lost.  Instead we will go the way of Britain, and be a 2nd rate country working our way to 3rd rate.  

7 Comments – Post Your Own

#1) On March 25, 2011 at 2:20 PM, FleaBagger (28.89) wrote:

I think it would be more 6-12 months, rather than 18-24, but certainly the 18-24 would still be worth it. And he's saying that austerity hasn't worked? Does it occur to him that maybe that is because it WASN'T TRIED IN ANY WAY, SHAPE, OR FORM? He's probably not a moron, but rather a lying sack of crap.

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#2) On March 25, 2011 at 3:45 PM, leohaas (32.18) wrote:

I would argue that austerity will cause the next Great Depression!

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#3) On March 25, 2011 at 4:13 PM, ETFsRule (99.94) wrote:

"The fact that Krugman names NO economist advocating austerity in his column is either proof he is blatantly lying or proof that he is entering an early stage of senility."

I may not always agree with Krugman, but he certainly isn't an outright liar.

I dug through some of his past columns and found just what you were looking for. For instance, in this column he links to a Ben Chu article which describes quite a few austerity advocates who were completely wrong about their predictions about Ireland. It's pretty hard to defend Guido Fawkes' prediction that, "Ireland will bounce back faster than the UK".

Or in 2009, Hamish McRae saying, "In three years' time Ireland will again be a fast-growing economy, have its deficit under control, and will again be admired for its enterprise."

Not all austerity advocates were wrong, but a lot of them were. Krugman's statement was fair and accurate.

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#4) On March 25, 2011 at 6:07 PM, rfaramir (29.32) wrote:

"Call it a form of self-mutilation" or rather masochism.

"the article is a complete waste of a thinking persons time." So you're admitting to not being a thinking person? ;-) To defend you, though, this is the same very human impulse that drives us to witness train wrecks, burning houses, and the like. It's not logical, but it's real.

"I disagree with some Austrian economist who believe there will be a sudden change of faith where dollar confidence is lost."

This is a possibility, but not a foregone conclusion. If the Fed is Ended (go Ron Paul!), or at least reigned in, and re-backs our currency (probably with gold), then confidence in it would be restored. Lacking that, though, a sudden loss is the most likely. The Fed now owns more Treasuries than China. We may be farther along the slippery slope toward hyperinflation and a currency crash than we think: only inflationary Fed purchases keep up the appearance of demand for Treasuries, any Fed selling for "soaking up excess liquidity" will cause complete loss of confidence in them.

You and FleaBagger are completely right. Austerity hasn't been tried, so it can't have failed. And, no, from what I've seen, Ireland didn't try it, either. A little tightening is not austerity.

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#5) On March 25, 2011 at 8:50 PM, ChrisGraley (29.87) wrote:

LOL, your first mistake was reading Krugman.

A broken clock is right twice a day.

The best Krugman can manage is to be 5 minutes slow twice a day.

He's not the blind squirrel, he's the nut.

 

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#6) On March 26, 2011 at 9:02 AM, amassafortune (29.60) wrote:

Austerity vs. Extend and Pretend

Budgeting and second jobs vs. a carousel of credit cards

Dieting and exercise vs. liposuction

I doubt Krugman would advocate large, new purchases and spending for someone with overextended personal finances. Why does the option of printing or digitally creating "money" change the logic so greatly in his mind?

I agree, austerity creates a deeper recession. Selling a car on which you can't afford payments results in a lower standard of living when you replace it with a used car paid for with cash. Cutting down dining and entertainment expense is a reduction in one's standard of living, even happiness for some. That second job reduces personal productivity by expending more effort to support fewer and cheaper assets. And when a bunch of people do this at the same time, it reduces GDP. 

What is the problem with temporary negative growth or deflation if it addresses the root cause of a problem? Haven't any Keynesians ever rebooted a computer? Warning, this solution may cause you to lose data, net worth, or GDP. Keynesians see "lose" in the sentence and Austrians see "solution".

Acquiring things on credit has always been based on an agreement to pay more in the long run for being able to use or experience something today. You have in some way, borrowed someone else's asset, or against someone else's asset for something you can not yet afford on your own. 

From time-to-time, our ability to service debt may exceed the terms of the promise made. Institutions like the Federal Reserve, primary dealers, Fannie and Freddie, appraisers, and ratings agencies tend to enable abuse over time. In fact, their raison d'etre is not to prevent excess or abuse, but rather to influence who will ultimately pay for for it. 

 

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#7) On March 28, 2011 at 5:35 PM, Melaschasm (52.22) wrote:

Follow the money.

 Krugman is paid for each reader.  He is not paid to accurately predict economic effects.  He is not paid to teach economics to his readers. 

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