Austerity won't work

Paul Krugman has a big, juicy piece up about what went wrong and continues to go wrong:

But it all went wrong in 2010. The crisis in Greece was taken, wrongly, as a sign that all governments had better slash spending and deficits right away. Austerity became the order of the day, and supposed experts who should have known better cheered the process on, while the warnings of some (but not enough) economists that austerity would derail recovery were ignored. For example, the president of the European Central Bank confidently asserted that “the idea that austerity measures could trigger stagnation is incorrect.”

Well, someone was incorrect, all right.

Of the papers presented at this meeting, probably the biggest flash came from one by Olivier Blanchard and Daniel Leigh of the International Monetary Fund. Formally, the paper represents the views only of the authors; but Mr. Blanchard, the I.M.F.’s chief economist, isn’t an ordinary researcher, and the paper has been widely taken as a sign that the fund has had a major rethinking of economic policy.

For what the paper concludes is not just that austerity has a depressing effect on weak economies, but that the adverse effect is much stronger than previously believed. The premature turn to austerity, it turns out, was a terrible mistake.

In a word: The problem is austerity. Intuitively, austerity seems the right idea at a time when debt is so high. But people with tight belts do not spend, and only spending can get the economy going again.

Yet we keep hearing that the only possible answer is ever more austerity:

The really bad news is how few other players are doing the same. European leaders, having created Depression-level suffering in debtor countries without restoring financial confidence, still insist that the answer is even more pain. The current British government, which killed a promising recovery by turning to austerity, completely refuses to consider the possibility that it made a mistake.

And here in America, Republicans insist that they’ll use a confrontation over the debt ceiling — a deeply illegitimate action in itself — to demand spending cuts that would drive us back into recession.

The Republican goal is not to save the country but to slice into Social Security and Medicare. They've made that fact very clear. Eric Zeusse argues that Obama is their secret ally:

Now he is repeating this same behavior, regarding cuts to “entitlements.” Yet again, polls show that the public rejects raising the retirement age, reducing the inflation-measure in calculating benefits, and the other Republican-pushed measures; but Obama is doing all he can to help Congressional Republicans get what they want on these issues.

Yet again, Pelosi and Reid are tearing their hair out about Obama’s deceits and his preemptory caves on vital issues. On January 4th, Pelosi in her weekly press briefing was asked about using the 14th Amendment to annihilate the Republicans’ threats to violate the 14th Amendment, and Pelosi said, “I’ve made my view very clear on that subject. But I’m not the president of the United States.” On the same day, Ryan Grim at Huffington Post bannered “Harry Reid Would Back Obama If He Bucks GOP On Debt Ceiling: Source.” Reid “has privately told other Democrats, including President Obama, that if the administration used its constitutional and executive authority to continue paying its debts in the face of House Republican opposition, he would support the approach.”

The way this would work is: Republicans would repeat the 1995 shut-down cliff-hanger, and President Obama would cite the 14th Amendment, and possibly also the trillion-dollar-coin tactic, to continue paying the U.S. Government’s debts; and the matter would then go to the Supreme Court to be adjudicated. But Obama has already, through his Press spokesperson, said that he won’t use the 14th Amendment. That will leave only the coin-tactic, which is less likely to succeed. He has already publicly trashed his biggest weapon.

Democrats in Congress cannot publicly say that they despise a Democrat in the White House, but the signs indicate that they do.

The coin trick may soon be the only bit of magic available to the president. He has not ruled it out. In fact, we see new trial balloons every day. I don't know if that's a positive sign or a distressing sign but...it's a sign of something.

There is thus now a Democratic Party rebellion against Obama, and he will soon show by his actions – no longer just his words – whether he is a Democrat, and whether his Republican actions in the past have reflected, on his part, stupidity, rather than actual treachery.

Many of my readers will find it hard to see this situation in terms of Pelosi & Reid vs. Obama. But I think that interpretation has much to recommend it.

I was pretty damned captious during the previous four years, and I would prefer to have a more positive stance toward the next four. There are encouraging signs: No more Tim Geithner, no more Rahm Emanuel. Call me naive, but I still think that we can force this president to act like a Democrat.