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Sunday, May 25, 2014

Paul Krugman, "Europe’s Secret Success": Je Ne Comprend Pas

How's your memory?

Do you remember how Paul Krugman declared in a 2012 New York Times op-ed entitled "Europe’s Great Illusion" (http://www.nytimes.com/2012/07/02/opinion/krugman-europes-great-illusion.html):

"It comes as something of a shock, even for those of us who have been following the story all along, to realize that more than two years have passed since European leaders committed themselves to their current economic strategy — a strategy based on the notion that fiscal austerity and 'internal devaluation' (basically, wage cuts) would solve the problems of debtor nations. In all that time the strategy has produced no success stories."

Or perhaps you remember how Krugman declared in another 2012 New York Times op-ed entitled "Europe’s Economic Suicide" (http://www.nytimes.com/2012/04/16/opinion/krugman-europes-economic-suicide.html?_r=1):

"Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression. And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.

. . . .

Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff. And the whole world will pay the price."

And only one month ago, in a New York Times op-ed entitled "Sweden Turns Japanese" (http://www.nytimes.com/2014/04/21/opinion/krugman-sweden-turns-japanese.html?ref=opinion&_r=0), Krugman wrote:

"Three years ago Sweden was widely regarded as a role model in how to deal with a global crisis. The nation’s exports were hit hard by slumping world trade but snapped back; its well-regulated banks rode out the financial storm; its strong social insurance programs supported consumer demand; and unlike much of Europe, it still had its own currency, giving it much-needed flexibility. By mid-2010 output was surging, and unemployment was falling fast. Sweden, declared The Washington Post, was 'the rock star of the recovery.'

Then the sadomonetarists moved in.

The story so far: In 2010 Sweden’s economy was doing much better than those of most other advanced countries. But unemployment was still high, and inflation was low. Nonetheless, the Riksbank — Sweden’s equivalent of the Federal Reserve — decided to start raising interest rates.

. . . .

Sure enough, Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan."

Well today, in a New York Times op-ed entitled "Europe’s Secret Success" (http://www.nytimes.com/2014/05/26/opinion/krugman-europes-secret-success.html?ref=opinion&_r=0), Krugman would have us know:

"Our political discourse is dominated by reverse Robin-Hoodism — the belief that economic success depends on being nice to the rich, who won’t create jobs if they are heavily taxed, and nasty to ordinary workers, who won’t accept jobs unless they have no alternative. And according to this ideology, Europe — with its high taxes and generous welfare states — does everything wrong. So Europe’s economic system must be collapsing, and a lot of reporting simply states the postulated collapse as a fact.

. . . .

The truth is that European-style welfare states have proved more resilient, more successful at job creation, than is allowed for in America’s prevailing economic philosophy."

Has fiscal austerity truly produced no success stories? Or is it possible that in some instances there is a place for austerity?

Excuse me, Paul, if I'm a little confused.

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