Rodríguez Zapatero in the "competitiveness summit" and Artur Mas
finished staging the Palace of Pedralbes ... after reading the report of CAREC and much mediocrity, I will discuss the translation of virtually all
Krugman's article March 24 on the NYT . I think that gives us a basic Keynesian key to put us also in the European context ... and see if we can learn something serious.
"The Government of Portugal has just fallen into a dispute over austerity proposals. The Irish government bond yields have exceeded 10 percent for the first time. And the government recently revised the low economic forecasts and upward which had been developed on the projected deficit.
What do all these events have in common? All evidence suggests that cutting spending to a high unemployment rate is a mistake. Proponents predicted that the austerity cuts in spending would bring quick dividends in the form of increased confidence, and would be very few, if any came to have, adverse effects on growth and employment, but they were wrong .
is a pity, therefore, that these days will not be anyone who is a serious person in Washington, unless they profess allegiance to the same doctrine that fails so miserably Europe.
was not always so. Two years ago, with rising unemployment and large budget deficits - both consequences of the financial crisis - the most advanced country leaders seemed to understand that the problems had to be addressed in sequence, immediately trying to create jobs combined with a deficit reduction strategy over the longer term.
Why not cut the deficit immediately? Because tax increases and cuts in government spending further depress the economy, increasing unemployment. And the spending cuts in a deeply depressed economy is largely self-defeating, even in purely fiscal terms, the savings on the one hand are offset by lower revenues caused by the contraction of the economy. So
work now and later deficits, this was and is the right strategy. Unfortunately, it is a strategy that has been abandoned by phantom risks and illusory hopes. On the one hand, we are constantly repeating that if we reduce spending immediately going to end as Greece, which just can not borrow at exorbitant interest rates. On the other hand, we're told not to worry about the impact of spending cuts on employment because the fiscal austerity able to create employment by increasing confidence.
How was this story so far?
The so-called deficit hawks have been crying wolf coming in relation to U.S. interest rates more or less continuously since the beginning of the financial crisis, kidding about the significance of rises in interest rates. The truth is that interest rates have fluctuated, not by fear of debt, but by the degree of hope for economic recovery. But full recovery is still far away, is lower now than two years ago.
But America can not be completed as Greece? Yes, of course. If investors decide that we are a banana republic, with politicians unable or unwilling to confront the long-term problems, they will stop buying our debt. But this possibility does not depend on whether we punish ourselves with spending cuts in the short term.
Ask the Irish, whose government - after taking an unsustainable debt burden of bailing out banks impossible to control - sought to calm markets by imposing savage austerity measures on ordinary citizens. The same people calling for spending cuts in the United States applauded. "Ireland gives us a wonderful lesson in fiscal responsibility," said Alan Reynolds of the Cato Institute, adding that spending cuts had eliminated fears about the solvency of Ireland ... and predicted a rapid economic recovery.
That was in June 2009. Since then, interest rates on debt in Ireland has doubled, and the unemployment rate in Ireland has now reached 13.5 percent.
And then there's the British experience. As U.S. financial markets believed that Britain was solvent, and gave the possibility of applying the strategy of putting the policies of occupation, leaving the deficit later. But the government of Prime Minister, David Cameron, chose to move to the immediate austerity, believing that private spending would offset government cutbacks. As I say, Cameron's plan was based on the belief that the fairy of confidence would solve everything.
But that has not happened: British growth has stagnated, and the government has to fix up its deficit projections.
Which brings me back to what happens in the economic debate in Washington these days (...) with a political climate in which the deficit hawks want to punish the unemployed to oppose any action to address the budget problems long term. Although we know from what happens abroad, the fairy of the trust will not save us from the consequences of our folly. "
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