Banging the Drum for Austerity

Mitch McConnell did the Sunday morning talk shows yesterday banging the drum for austerity.  Krugman in his column this morning mentions that the paper creating the most buzz at the annual meeting of the American Economic Association is one by Olivier Blanchard and Daniel Leigh of the IMF; it is a recantation of austerity.  Krugman provides a thumbnail sketch of the 2008 financial meltdown, a gigantic crisis that required governments not just to prime the pump by keeping interest rates low but to step in and start spending -- run deficits -- until the private sector recovered.

But it all went wrong in 2010. The crisis in Greece was taken, wrongly, as a sign that all governments had better slash spending and deficits right away. Austerity became the order of the day, and supposed experts who should have known better cheered the process on, while the warnings of some (but not enough) economists that austerity would derail recovery were ignored. For example, the president of the European Central Bank confidently asserted that “the idea that austerity measures could trigger stagnation is incorrect.”  

Speaking a Greece, there is an excellent opinion page piece by Kostas Vaxevanis, the embattled publisher of Hot Doc, who made the Lagarde list public and then was arrested and prosecuted by the government and eventually acquited.  Vaxevanis' story is about the rotten oligarchy that rules Greece but it speaks to how government works in all countries.