Krugman: I Wish I'd Been Wrong

It's the strangest thing, to listen to two intelligent progressives talk about the economy without using talking points or jargon, isn't it? Since Krugman has a new book ("End This Depression Now!"), he's out making the rounds on all the talk

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It's the strangest thing, to listen to two intelligent progressives talk about the economy without using talking points or jargon, isn't it?

Since Krugman has a new book ("End This Depression Now!"), he's out making the rounds on all the talk shows and it's so refreshing to hear him speak at length. It appears that His Shrillness is finally making some inroads with the Very Serious People, despite the austerians who still insist the obvious path to fiscal health is to cut harder! Faster! Longer!

This Bloomberg piece points out his position and that of other economists like Joseph Stiglitz and Larry Summers are beginning to filter into the European power centers:

Europe’s shifting emphasis from enforcing austerity to seeking economic growth marks a hollow victory for Nobel laureate Paul Krugman.

“I wish I’d been wrong for the sake of the world,” Krugman said in an interview with Bloomberg Television’s Carol Massar. “You can see that there has been a definite shift in opinion.”

The euro area’s push to revive confidence in its economy and financial markets by attacking budget deficits will be challenged at the ballot boxes of France and Greece on May 6 as the region’s economy skids toward its second recession in three years and unemployment nears 11 percent.

Leading demands for a revised strategy, French Socialist Francois Hollande, a reader of Krugman, tops President Nicolas Sarkozy in the polls with the warning that putting debt-cutting over expansion is “bringing desperation to people.” Elsewhere, Greeks are turning to anti-austerity parties, recession-wracked Spain and Italy are relaxing deficit targets, the Dutch government is splintering and European Central Bank President Mario Draghi is calling for a “growth compact.”

The U.K., which the International Monetary Fund reckons accounts for a third of the budget cuts in the 10 largest European Union countries, is already back in recession.

“You can’t do deficit reduction without the people” understanding and endorsing it, said Paul Martin, who as Canada’s finance minister through most of the 1990s turned a C$36 billion ($36 billion) shortfall into a surplus in three years. “Deficit reduction has to be balanced with growth and it’s pretty clear Europe (BEBANKS) has lost that balance.”

The debate has split policy makers, investors and academics alike as Europe pursued a cocktail of tax increases and spending cuts to beat a sovereign debt crisis that raged from Greece through Ireland and Portugal to the very heart of the single currency bloc.

[...] “Francois Hollande has read Krugman,” Michel Sapin, one of Hollande’s economic advisers, said in an interview. “His writings show that Hollande’s proposals are not a whim and that this idea that growth is key is spreading.”

To Krugman, advocates of fiscal retrenchment such as German Chancellor Angela Merkel are ideological “austerians” who by misunderstanding the ills they’re trying to cure risk “Europe’s economic suicide.” He calculates that paring government spending by one euro ($1.32) generates only about 40 cents in reduced debt in the short-run and 1.25 euros in lost production.

“Aggressive fiscal austerity is self-defeating if you can’t grow,” said Andrew Balls, the London-based head of European portfolio management at Pacific Investment Management Co. (PTTRX), which oversees the world’s largest bond fund. “Krugman is a highly respected economist with a prominent platform who provides a very clear explanation of that view.”

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