In his most recent column, Paul Krugman declares victory in the stimulus vs austerity debate, citing Britain’s crappy economy as evidence that “austerity” is for the birds.
After prime minister David Cameron swept to power, he promptly cut spending, and, since then, the UK’s economy–and tax revenues–have taken a dive.
Meanwhile, here in the US, where we’ve ignored the deficit and passed a stimulus package (which Krugman thinks was way too small), growth is chugging along.
What the austerians miss, Krugman argues, is that when you cut spending, you also reduce future tax revenue, which defeats the purpose of trying to “close the deficit” in the first place.
Krugman also observes that the bullish austerity argument–that “business confidence” will spike as soon as everyone sees that the government is finally getting its fiscal house in order–is a crock: Despite UK prime minister David Cameron’s slashing and burning, no one’s confident, and the government just had to revise its growth expectations downward.
Krugman also takes a swing at Washington, where lawmakers are quibbling about a few tens of billions of dollars of spending cuts and even the party that’s supposedly “serious” about cutting our deficit refuses to tackle the real problem–Medicare and Medicaid–and thinks that no one’s taxes should ever be raised.
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