Business Insider: The Economic Argument Is Over -- Paul Krugman Has Won

Business Insider ^ | 04/24/2013 | Henry Blodget

[SeekAndFind]

For the past five years, a fierce war of words and policies has been fought in America and other economically challenged countries around the world.

On one side were economists and politicians who wanted to increase government spending to offset weakness in the private sector. This "stimulus" spending, economists like Paul Krugman argued, would help reduce unemployment and prop up economic growth until the private sector healed itself and began to spend again.

On the other side were economists and politicians who wanted to cut spending to reduce deficits and "restore confidence." Government stimulus, these folks argued, would only increase debt loads, which were already alarmingly high. If governments did not cut spending, countries would soon cross a deadly debt-to-GDP threshold, after which economic growth would be permanently impaired. The countries would also be beset by hyper-inflation, as bond investors suddenly freaked out and demanded higher interest rates. Once government spending was cut, this theory went, deficits would shrink and "confidence" would return.

This debate has not just been academic.

Those in favor of economic stimulus won a brief victory in the depths of the financial crisis, with countries like the U.S. implementing stimulus packages. But the so-called "Austerians" fought back. And in the past several years, government policies in Europe and the U.S. have been shaped by the belief that governments had to cut spending or risk collapsing under the weight of staggering debts.

Over the course of this debate, evidence has gradually piled up that, however well-intentioned they might be, the "Austerians" were wrong. Japan, for example, has continued to increase its debt-to-GDP ratio well beyond the supposed collapse threshold, and its interest rates have remained stubbornly low.

[MachIV]

If bankrupting the nation qualifies as a “win”.....I guess so.

[Olog-hai]

Consider the source. Permanently banned from the securities industry due to fraud.

[Cringing Negativism Network]

Bring back US jobs, from China and elsewhere.

We have squandered several generations worth of productivity, and now face ruin. I’m serious.

Bring back US jobs.

Now.

[steve8714]

Convince our youth they shouldn’t all be stockbrokers, basketball players or gubmint workers.

[RC one]

Good catch.

[sphinx]

So Japan is supposed to be the decisive success story? And the piece is illustrated by a 1934 pic of a picks and shovel CCC crew?

[Da Coyote]

Won?

By what measure?

That clown has an IQ even lower than the Obamadork (if that is possible).

[BfloGuy]

More notably, in Europe, countries that embraced (or were forced to adopt) austerity, like the U.K. and Greece, have endured multiple recessions (and, in the case of Greece, a depression).

What unmitigated twaddle. There isn't a single country that has tried government austerity. All they have mustered the courage [?] to do is cut the growth in spending all the while raising taxes on the already-burdened private economy.

True austerity would see government spending cut below current levels while leaving taxes the same or actually cutting them. This author is very, very ignorant of the facts. Of course, the title told us that.

[ilgipper]

Yes! .01% growth and 7.5% unemployment is PROOF that this approach works.

What a bunch of utter morons on the left. Our economic situation is a sustained disaster with no hope for any meaningful change. In their eyes, things have never been better. Never mind the facts. Never mind we are well below any historical norms.

[bandleader]

As I have said before,two ten-year olds running a streetcorner lemonade stand have FORGOTTEN more about Economics than Paul Krugman EVER knew!!!!!!!!!!!!!!!!!

[desertfreedom765]

Many on Wall Street would be happy to see the Fed inflate away the value of your savings and retirement.

Some of that value is captured by them. The rest is captured by the Government.

They call this stimulus.

[buckalfa]

Of course this only works if you have a "central bank" that can create money out of thin air and hide the debt from the government's balance sheet. There will eventually be a day of reckoning.

The sad thing though is that there is anecdotal evidence that Krugman is correct at least in the short run. Look around your friends and acquaintances. How many of them have incomes that rely in great part to government spending. Public safety, schools, hospitals, government offices, businesses with government contracts, outright grants and subsidies, not to mention transfer payments. The governments impact on GDP is large to say the least.

Eisenhower tried to warn us back in 1960 in his farewell speech. No one listened.

[JCBreckenridge]

How about being able to teach full time?

(that wouldn’t fit your narrative though!)

[JCBreckenridge]

I wonder if these Austeritians have anything in common with the Austrians?

[RAY]

Gov deficit spending by printing funny money is a tax by virtue of decreasing the value of our dollars, the results are really not in yet!!

[BlueStateRightist]

As an editor of a specialty medical journal, I would have rejected this type of analysis immediately as unscientific. Unfortunately, the propagandists will take hold of it and claim the Marxist is doing it all correctly. In a nutshell, comparing the economic behavior of the United States to any other country without controlling for a number of variables that make up the intrinsic features of each country (demographics, type of economy, products manufactured, etc) is ridiculous. Essentially, there is no appropriate control group. The other important point is the short term analysis says nothing of the long term pain of increased budgetary debt, which we can surmise accurately will be greatly catastrophic. Austerity is akin to painful and unpleasant chemotherapy for a cancer. The short term is bad, but the long term prognosis is better than simply feeding the cancer and letting the patient “feel good” for the next 6 months.

[JCBreckenridge]

Hey, you have to have faith in the Great and powerful Oz. Don’t make the mistake of looking behind the curtain!

[Texan Tory]

I’ll admit that I’m not an expert in economics, but this type of thinking is making me nervous...this seems to me like someone who builds a house of cards, and it hasn’t collapsed yet...so he thinks, “well this house of cards is more solid than I thought, I’ll just add some more levels, no problem.” The more he adds to it, the greater the risk that it will eventually collapse, and the greater the size of the collapse when it finally happens.

[winner3000]

(Higher government debt levels still correlated with slower economic growth, but the relationship was not nearly as pronounced.)

So, because the correlation between government debt levels and growth is not as pronounced, this means that the argument is over, and people who argue for unlimited debt won? WOOOOWW! What a huge jump in assumptions. It tells you the agenda of the writer, big time!
Notice that before the error was found, and it was thought that the correlation was much stronger, that didn’t stop them from continuing the fight for big government spending. But now that the evidence against them did not actually shift but became less strong, they are willing to declare victory and are telling the other side to disarm. What chutzpah they have!!!