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Forum Post: Death of a Fairytail

Posted 9 years ago on April 27, 2012, 4:46 a.m. EST by PeterKropotkin (1050) from Oakland, CA
This content is user submitted and not an official statement

By Paul Krugman

This was the month the confidence fairy died.

For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should — by spending more to offset falling private demand — but with fiscal austerity, slashing spending in an effort to balance their budgets.

Critics warned from the beginning that austerity in the face of depression would only make that depression worse. But the “austerians” insisted that the reverse would happen. Why? Confidence! “Confidence-inspiring policies will foster and not hamper economic recovery,” declared Jean-Claude Trichet, the former president of the European Central Bank — a claim echoed by Republicans in Congress here. Or as I put it way back when, the idea was that the confidence fairy would come in and reward policy makers for their fiscal virtue.

The good news is that many influential people are finally admitting that the confidence fairy was a myth. The bad news is that despite this admission there seems to be little prospect of a near-term course change either in Europe or here in America, where we never fully embraced the doctrine, but have, nonetheless, had de facto austerity in the form of huge spending and employment cuts at the state and local level.

So, about that doctrine: appeals to the wonders of confidence are something Herbert Hoover would have found completely familiar — and faith in the confidence fairy has worked out about as well for modern Europe as it did for Hoover’s America. All around Europe’s periphery, from Spain to Latvia, austerity policies have produced Depression-level slumps and Depression-level unemployment; the confidence fairy is nowhere to be seen, not even in Britain, whose turn to austerity two years ago was greeted with loud hosannas by policy elites on both sides of the Atlantic.

None of this should come as news, since the failure of austerity policies to deliver as promised has long been obvious. Yet European leaders spent years in denial, insisting that their policies would start working any day now, and celebrating supposed triumphs on the flimsiest of evidence. Notably, the long-suffering (literally) Irish have been hailed as a success story not once but twice, in early 2010 and again in the fall of 2011. Each time the supposed success turned out to be a mirage; three years into its austerity program, Ireland has yet to show any sign of real recovery from a slump that has driven the unemployment rate to almost 15 percent.

However, something has changed in the past few weeks. Several events — the collapse of the Dutch government over proposed austerity measures, the strong showing of the vaguely anti-austerity François Hollande in the first round of France’s presidential election, and an economic report showing that Britain is doing worse in the current slump than it did in the 1930s — seem to have finally broken through the wall of denial. Suddenly, everyone is admitting that austerity isn’t working.

The question now is what they’re going to do about it. And the answer, I fear, is: not much.

For one thing, while the austerians seem to have given up on hope, they haven’t given up on fear — that is, on the claim that if we don’t slash spending, even in a depressed economy, we’ll turn into Greece, with sky-high borrowing costs.

Now, claims that only austerity can pacify bond markets have proved every bit as wrong as claims that the confidence fairy will bring prosperity. Almost three years have passed since The Wall Street Journal breathlessly warned that the attack of the bond vigilantes on U.S. debt had begun; not only have borrowing costs remained low, they’ve actually fallen by half. Japan has faced dire warnings about its debt for more than a decade; as of this week, it could borrow long term at an interest rate of less than 1 percent.

And serious analysts now argue that fiscal austerity in a depressed economy is probably self-defeating: by shrinking the economy and hurting long-term revenue, austerity probably makes the debt outlook worse rather than better.

But while the confidence fairy appears to be well and truly buried, deficit scare stories remain popular. Indeed, defenders of British policies dismiss any call for a rethinking of these policies, despite their evident failure to deliver, on the grounds that any relaxation of austerity would cause borrowing costs to soar.

So we’re now living in a world of zombie economic policies — policies that should have been killed by the evidence that all of their premises are wrong, but which keep shambling along nonetheless. And it’s anyone’s guess when this reign of error will end.




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[-] 1 points by hchc (3297) from Tampa, FL 9 years ago

Keep spending, and the bond market doesnt like it.

Go for meaningless, powerless cuts, and the bond market doesnt like it.

We are in a global financial collapse, and more war is right around the corner. There is no getting out of this. More spending wont help, it only devalues the peoples money, and hte cuts needed to turn the ship would lead to widescale riots.

Welcome to the time of perpetual war in the means of supporting the dollar.

[-] 1 points by geo (2638) from Concord, NC 9 years ago

And this comes from Krugman, who doesn't even understand MMT. At least he is spreading the word.

[-] 1 points by hchc (3297) from Tampa, FL 9 years ago

What was MMT again?

[-] 1 points by geo (2638) from Concord, NC 9 years ago

Modern Monetary Theory. Take the time to dive into it. It is how our monetary system really works.


Austerity budgets is NOT the way to go. We are not bankrupt. We don't need to sell bonds to finance the defict, selling bonds is done for other reasons. The Federal Budget has nothing at all in common with household finance analogies.

[-] 1 points by hchc (3297) from Tampa, FL 9 years ago

I jumped in right after I posted that, and yes, its fiat money on steroids.

[-] 2 points by geo (2638) from Concord, NC 9 years ago

No, its fiat money period. Its how the system operates... not the preconceived notions that people still have stuck on commodity based currency.

[-] 1 points by JadedCitizen (4277) 9 years ago

Hey, I like zombie movies. Please don't take it out on the zombies and give them a bad rap by involving their good name with this mess. Can't you use vampires or something else?

[-] 1 points by gnomunny (6819) from St Louis, MO 9 years ago

Personally, I like vampire movies (the old ones, anyway, not the Twilight shit). Actually, zombie vampires, or vampire zombies, would probably be most appropriate, tho.

[-] 1 points by JadedCitizen (4277) 9 years ago

Twilight ruined vampires. Common sense - vampires are supposed to be scary.

Instead of zombie, he should use the adjective twilight, as in a world of twilight economic policies, meaning an economy ruined by dumb ass people who don't respect common sense.

[-] 1 points by gnomunny (6819) from St Louis, MO 9 years ago

Twilight would be another appropriate description.

Yeah, 'Twilight' and its ilk ruined vampires (Christopher Lee = best . . . Dracula . . . ever!). At least zombies are still scary.

[-] 1 points by JadedCitizen (4277) 9 years ago

Therein lies my problem with vampires. I think they have always been portrayed in a mediocre way in movies. I can't think of a single vampire movie that really blew my mind. Good vampire movies. Check. Awesome vampire movie(s). Not really.

I take that back. Let The Right One In would be the standard bearer for what I would call the best vampire movie all time. If they made more vampire movies like that, vampires would rule.

[-] 1 points by gnomunny (6819) from St Louis, MO 9 years ago

I never heard of that vampire movie, so I did a quick check on IMDb. Looks like a Dutch movie, maybe? Is it subtitled or dubbed? I take it it's not like Twilight, although it looks like "boy finds girl, girl is a vampire."

[-] 1 points by JadedCitizen (4277) 9 years ago

The original version I watched was dubbed. However, it was popular enough to be remade into an American version - Let Me In. I think the American remake faithfully keeps to the original story and is just as powerful, perhaps even a tad bit better.

Don't let the 'boy finds girl, girl is a vampire' tag line fool you. Trust me, the difference between the twilight junk and this story is as stark as day and night. Twilight is a romance movie and tells you there are good guy and bad guy vampires in it. Let Me In is a horror movie with real people and a tragically real vampire in it, which expects the viewer to decide whether it is evil or not. It intends to make you feel uncomfortable at times, which any great horror movie should.

[-] 1 points by gnomunny (6819) from St Louis, MO 9 years ago

Excellent. I'm looking forward to seeing it. Thanks.

[-] 1 points by JadedCitizen (4277) 9 years ago

Happy viewing.

[-] 0 points by TechJunkie (3029) from Miami Beach, FL 9 years ago

I knew that fairies have wings, but tails? That's a new one...