Friday, March 01, 2013

Time to sequester the elite consensus on austerity economics in Europe and in the US

Paul Krugman is again reminding us about how damaging the conventional wisdom on austerity economics among elites has been, both in the US and even more so in Europe.

In Disastrous Predictions and Predictable Disasters 03/01/2013, he writes:

Joe Weisenthal is wrong. He writes that the unfolding economic disaster in Europe is what everyone predicted. Not so. It’s what he predicted, it’s what I predicted, but it's not at all what many people were predicting. And the people who got it completely wrong happen to be the people still running European economic policy. ...

And the fact is that a more or less Keynesian framework — a framework that says that austerity in a depressed economy is a terrible idea — has yielded pretty good predictions through the crisis, while the anti-Keynesian stories that became the conventional wisdom in Brussels and Frankfurt have delivered an awesome record of predictive failure.

Yet European leaders seem determined to learn nothing, which makes this more than a tragedy; it's an outrage.
In his regular column, Ben Bernanke, Hippie New York Times 02/28/2013, he points out that the tenth anniversary of the invasion of Iraq will be coming up soon (March 20). And yet the foreign policy experts and Establishment pundits who were so spectacularly wrong about it are not only not discredited, they are still treated by the press as serious authorities on foreign policy. And he writes:

And, even more remarkably, a very similar story has played out over the past three years, this time about economic policy. Back then, all the important people decided that an unrelated war was an appropriate response to a terrorist attack; three years ago, they all decided that fiscal austerity was the appropriate response to an economic crisis caused by runaway bankers, with the supposedly imminent danger from budget deficits playing the role once played by Saddam’s alleged weapons of mass destruction.

Now, as then, this consensus has seemed impenetrable to counterarguments, no matter how well grounded in evidence. And now, as then, leaders of the consensus continue to be regarded as credible even though they’ve been wrong about everything (why do people keep treating Alan Simpson as a wise man?), while critics of the consensus are regarded as foolish hippies even though all their predictions — about interest rates, about inflation, about the dire effects of austerity — have come true.
The fact that Federal Reserve Chairman Ben Bernanke recently pointed out the problems with austerity economics in the current environment is unlikely to change the elite consensus on austerity, especially with President Obama promoting the argument that The Deficit is a dire threat. But, Krugman writes, "Mr. Bernanke's apostasy may help undermine the argument from authority — nobody who matters disagrees! — that has made the elite obsession with deficits so hard to dislodge."

His bottom line: "A misguided elite consensus has led us into an economic quagmire, and it’s time for us to get out."


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