Krugman: The early stages of a third depression

The G-20 leaders have returned to their home countries, with the world’s richest nations pledging to cut deficits in half by 2013.

Nobel Prize winning economist Paul Krugman writes in a New York Times op-ed that governments are obsessing about inflation, when the real problem is inadequate spending.

Krugman argues that while it may be popular for deficit-hawks to point to the recent economic troubles facing Greece, there is a danger in exercising this fiscal austerity that forces states and local governments to make further budget cuts.

Here’s an excerpt:

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.


  1. UCubed

    June 28, 2010 at 12:26 pm

    how can you have a “recovery” with 31 million unemployed and unable to spend?

  2. Brian H Vedder

    June 28, 2010 at 1:58 pm

    Mankind has no option but to wage full-scale warfare against the banking industry. Finance doesn’t produce 40% of the world’s corporate profits, it sucks out 40% of the world’s economic vitality, which goes into the opulence of its executives.. Finance is a service industry that yields no merchantable product. As such, it is dead weight. If we don’t get it under control, eventually it will devour what’s left

  3. HunterC

    June 28, 2010 at 3:40 pm

    Let them eat subsidized corn syrup commodities!

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