Krugman's Manifesto for Economic Common Sense
The Nation, July 9, 2012
"Krugman and Layard’s manifesto offers both diagnosis and prognosis for what ails us. “Today’s government deficits are a consequence of the crisis, not a cause,” they write. The real culprits: a private sector property bubble followed by a collapse in spending. Government policy should be “a stabilizing force, attempting to sustain spending.” Instead, it’s “reinforced the damping effects of private-sector spending cuts.” Rather than obsessing over short-term deficits, “a key priority is to reduce unemployment, before it becomes endemic, making recovery and future deficit reduction even more difficult.”
Krugman and Layard acknowledge the common counterarguments, and they don’t mince words about them. Critics say austerity is necessary to keep interest rates down. “But there is no evidence in favor of this argument.” Ditto for the claim that structural imbalances prevent expanding demand. “As a result of their mistaken ideas,” they write, “many western policy makers are inflicting massive suffering on their peoples.” Sad but true."