Paul Krugman’s Flagrant ‘Austerity’ Double Standard
Generally speaking, we try to avoid mentioning shrill leftist New York Times columnist Paul Krugman, not because he makes no absurd statements but because he makes so many of them. An exception to this rule must be made, however, thanks to an excellent piece by economist Robert P. Murphy in the American Conservative headlined “Heads Krugman Wins, Tails ‘Austerity’ Loses.”
In the past several years, during and following the recent “sequester” debate the leftist economist predicted utter disaster if it went through. According to Krugman, America was almost guaranteed to enter another recession on account of the supposed fact that miniscule cuts in the rate of the federal budget’s growth would have an anti-stimulative effect on the economy. A funny thing happened on the way to Armegeddon though: the U.S. economy actually seems to be doing better since the sequester went into effect.
As Murphy notes, Krugman was both emphatic and weasely in making this pronoucement:
In June 2010, for example, Krugman warned that “[m]any economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession.” However, Krugman was smart enough to cover himself, after raising the 1937 analogy, by ending with: “How bad will it be? Will it really be 1937 all over again? I don’t know. What I do know is that economic policy around the world has taken a major wrong turn, and that the odds of a prolonged slump are rising by the day.” So this is one part of his excellent defense: In terms of this column, the only way to falsify Krugman’s “prediction” is if all the European and US economies suddenly had robust recoveries in 2011. Who the heck was predicting that? Certainly none of the free-market economists going nuts over the awful policies in these regions.
Now when several countries across the Atlantic slid back into recession, Krugman was quick to say he told us so. In particular, he ridiculed British Prime Minister David Cameron who had argued that UK “austerity”—which is a ridiculous term, in my opinion, since Veronique de Rugy documents how hardly “savage” this austerity was—would reassure investors in the integrity of British debt and the pound. Krugman argued that the UK’s double dip speaks for itself, and mocked Cameron and former ECB head Jean-Claude Trichet for their belief in “the confidence fairy,” just to make sure we all realize just how silly the whole idea was.
As noted in the linked de Rugy piece above, a fair-minded reading of recent European fiscal policy would not create the impression that actual, real “austerity” measures of the kind that were put in place to great success by U.S. president Calvin Coolidge in the 1920s were actually implemented. Then again, Paul Krugman and fair-minded in the same sentence is like a mad-lib just waiting for the punchline or an SAT analogy asking to be completed.
Sadly for the formerly sane economist, his predictions of doom and gloom never materialized. In fact, the economy today is doing better than ever suggesting that the sequester had either a positive effect on the economy or no real effect at all. Unsurprisingly, Krugman has refused to own up to his error. He has simply tried to sweep it under the rug:
So what happened instead? Well, the data so far suggest the exact opposite. Rather than the big job losses from the US sequester, Reuters is reporting that US job market gains are making the Fed consider ending QE3 early. The official unemployment rate continues to fall steadily; you thus far don’t see any spike upward, as happened in Europe after its alleged austerity disaster. The BEA’s advance estimate for first-quarter GDP growth in 2013 is 2.5 percent, which is as high as it’s been in six of the last eight quarters. Finally, the CBO just came out with its May budget outlook, and guess what? Compared to its February outlook (i.e. just a few months earlier), the CBO’s estimate for the deficit for this year has been revised down by more than $200 billion. In FY2018—five years after this recent sequester “foolishness” has been implemented—the CBO now projects a debt/GDP ratio that is more than two percentage points lower (70.8% versus 73.1%), compared to its forecast from just a few months ago. [...]
Even though the pro-austerity folks have a prima facie victory—according to the very criteria that Krugman has been using for the last several years—Krugman handled the recent CBO announcement by saying it yet again proved him right. Specifically, Krugman wrote on May 15: “The new CBO numbers are out, and they scream ‘debt crisis? What debt crisis?’” He goes on to clam:
[O]ur policy discourse has been dominated for years by what turns out to be a false alarm. To the millions of Americans who are out of work and may never get another job thanks to premature fiscal austerity, the VSPs would like to say, “oopsies!”
So there you have it folks: When European “austerity” leads to a rising unemployment, a double dip in GDP, and a collapsing budget situation, Krugman says he told us so; austerity is stupid. And when US “austerity” leads to falling unemployment, relatively strong GDP growth, and a vastly improved budget situation, Krugman says he told us so; austerity is stupid.