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