Monday, April 16, 2012

Krugman: "I’m really starting to think that we’re heading for a crackup of the whole system."

Exactly which system he means isn't entirely clear in his blog post, Insane in Spain 04/15/2012. I'm guessing he means the euro system:

So, the euro crisis is risk on again. And this time it’s centered on Spain — which in a way is a good thing, because now the essential craziness of the orthodox German-inspired diagnosis of the crisis is on full display.

For this is really, really not about fiscal irresponsibility. ...

What happened to Spain was a housing bubble — fueled, to an important degree, by lending from German banks — that burst, taking the economy down with it. Now the country has 23.6 percent unemployment, 50.5 percent among the young.
And what is the EU prescription? More Angienomics: austerity, austerity, austerity - for the 99%, of course!

He elaborates in his New York Times column, Europe's Economic Suicide 04/15/2012:

This is, not to mince words, just insane. Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression. And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.

What is the alternative? Well, in the 1930s — an era that modern Europe is starting to replicate in ever more faithful detail — the essential condition for recovery was exit from the gold standard. The equivalent move now would be exit from the euro, and restoration of national currencies. You may say that this is inconceivable, and it would indeed be a hugely disruptive event both economically and politically. But continuing on the present course, imposing ever-harsher austerity on countries that are already suffering Depression-era unemployment, is what’s truly inconceivable.
And then, there's also the democracy thing, which also didn't fair as well as one might have hoped in Europe in the 1930s. Something our establishment press and Pod Pundits seem to have forgotten all but entirely. Not Krugman. But then he's considered "shrill" and, as he often notes, not one of the Very Serious People. He concludes his column:

So it's hard to avoid a sense of despair. Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff. And the whole world will pay the price.
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