End This Depression Now!
By Paul Krugman
I get the impression that deciding which politicians to believe may have been easier in the past. In recent years, the lines between Britain’s political parties have become blurred. Under Blair and Brown, the traditionally left-leaning Labour Party moved toward the political centre, while David Cameron’s support for things like gay marriage would have been toxic for Tory leaders of yore. Last year, shadow chancellor Ed Balls declared that, had he been in office, he would have made cuts as scything as those implemented by the coalition government (he’s since backtracked on this statement). Britain’s three major parties were aligned behind austerity. Those without an economics background could have been forgiven for thinking that there was simply no alternative: if the rule of the free markets was the establishment dogma of the first 20 years of our lives, then austerity, it seemed, would dominate the second.
The quasi-religious zeal with which opponents of austerity in the UK and further afield have been dealt hasn’t helped. The invisible hand of Adam Smith has been deified and austerians frequently assume the persona of a fire-and-brimstone touting evangelist when asked to explain why exactly we’re sidelining everything else to “tackle” a debt to GDP deficit which, while high, has been higher for almost all of the past 150 years. In the US, Barack Obama was branded a “socialist” for introducing a $787 billion (about £500 billion) stimulus into the economy in 2009 – well under 2 per cent of the economy’s total spending for the three year period over which it was injected.
Politicians and media alike warn of the spectre of hellenization, that we too will follow Greece down the can should we not address our national debt, rein in public spending and farm the core of the government’s operations out to the private sector. What they fail to do is to provide context to their policies, relying on scaremonger tactics to get voters onside. The Greek economy is a unique case in contemporary economics, but we’re rarely told that. How many of us know what actually happened with the Greek economy? How many can explain the cause and effects of the financial crisis, five years on?
For years now, Nobel Prize winning economist Paul Krugman has been using his New York Times columns and blog posts to try to educate people about what he sees as the causes of the economic crisis and how we can haul ourselves out of it. His latest book is a concise and efficient collection of such thoughts. He uses no bluster, just evidence. Rather than bamboozling jargon, Krugman prefers to use neat anecdotes. It provides an excellent introduction to the state of the world economy and, very convincingly, argues that the line being pursued by the EU, the coalition and the American right will do nothing but plunge us further into economic despair.
The crux of his argument is that the global economy is suffering because economic output, employment and, therefore, demand are low. It’s suicidal, he says, to cut spending in times of depression. His roots are in Keynesian economics and, while he brings little in the way of new theory to the table, his willingness to take heed from the lessons of history is perhaps his strongest card.
Krugman (along with the likes of former World Bank chief economist Joe Stiglitz) has been urging politicians to revisit the post-Depression age, the historical period of economic downturn which reflects today’s climate most accurately. The most shocking thing to be taken from End This Depression Now! is the lengths to which establishment figures have gone to in ignoring the lessons of that period. While governments of the 1930s and 40s eventually recognised that the way to stimulate the economy was through direct fiscal intervention and the tightening of financial regulation, today’s neoliberals call for more deregulation, more tax breaks and less government spending.
But why would those entrusted with the keys to the treasury act in direct opposition to what, upon reading this book, appears to be common sense? Krugman writes brilliantly about the political and social shifts in America in the 1980s which led to the financial “big bang”, to rafts of privatisation and a massive concentration of wealth. People in powerful positions became richer and richer. Universities stopped subsidising research that went against the kind of right-wing economics favoured by the Republican Party, since many of their benefactors stood to lose from Keynesian policies in the Treasury Office.
Most of the book focuses on the situation in the US, but it’s almost all relevant for readers in the UK. In fact, the most illuminating passages are those in which Krugman turns his attention to these shores. “For the most part,” he writes, “countries adopting harsh austerity policies despite high unemployment have done so under duress. Greece, Spain and others have found themselves unable to roll over their debts and were forced to slash spending and raise taxes to satisfy Germany... But there has been one dramatic case of a government engaging in unforced austerity because it believed in the confidence fairy: Prime Minister David Cameron’s government in Britain.”
The “confidence fairy” he speaks of refers to the view that cutting government spending will lead to renewed confidence and economic recovery. It’s an argument Krugman unpicks with ease – he goes as far as to suggest it’s a fabrication of big business in order to yield lower high-bracket tax rates – yet as the UK headed into double-dip recession earlier this year, chancellor George Osborne vowed to stick to his guns. Halfway through the government’s term in office, many people – and other political parties – are questioning whether austerity works. Krugman’s plainly written, easy to follow book highlights the reasons why it doesn’t and for those that require it, provides you with the ammunition to win the argument.
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