Friday, June 18, 2010

Is our new turn towards austerity a mistake?

Paul Krugman thinks our new found national interest in condemning deficits and refusing to help a still-struggling economy is a huge mistake. But wait, wasn't the absence of self-discipline before the crisis one of the reasons we had a crisis?

Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.'s premature attempt to balance the budget helped plunge a recovering economy back into severe recession. And here in Germany, a few scholars see parallels to the policies of Heinrich BrĂ¼ning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic.

But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here, where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.

Continue Reading @ The New York Times