Paul Krugman’s Second Nobel Prize
New York Times columnist Paul Krugman won the Nobel Prize in Economics in 2008. According to IDEAS/REPEC (a ranking of Economists by article citations), his work has made him one of the most influential economists in the world, and he is among the 12 most widely cited economists. He’s a smart guy.
So why isn’t anyone listening to him?
For the last nine month, Krugman has been warning that the recession is NOT over, that there is still a terrible danger that reducing or ending economic stimulus packages will trigger a deeper recession or even another depression. He points out that unemployment is still very high, that we face a terrible risk of a deflationary spiral and that there is no evidence that the sudden fashion for fiscal austerity will accomplish anything except to aggravate an already bad situation.
Krugman seems to be the only economist pointing out that huge budget deficits are a function of both increased spending and decreased revenue. When the economy shrinks, so does governmental tax revenue generated from the economy. Recovery must involve increasing governmental revenue. Austerity programs simply do not accomplish that goal. They may reduce the spending, but they cannot increase the revenue. That’s one of the important lessons of the Great Depression.
So WC figures Paul Krugman will get his second Nobel Prize in Economics for having called it out before it happened: the first Great Depression of the 21st Century.
It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.
We don’t have to make this mistake again. WC doesn’t even think the budget hawks are driven by genuine concern for the deficit: let’s see if they want to slash federal spending in their districts. All Congresspersons who want military bases in their districts closed please raise your hands? No, it’s driven by Tea Bag politics, by Republicans putting recovery of political power ahead of sensible policy. Ultimately, it’s self-defeating, but the price to the United States may end up rivaling the cost of the Great Depression.
Perhaps it’s part of the “bone-headed, defiant and willfully ignorant” wave of anti-intellectualism sweeping the country. Whatever the cause, if people who are in charge don’t start to act intelligently we’re on a path to disaster. It’s not enough to cry, “Big deficits are bad,” if the alternative is even worse.
(And before you write of Krugman as “just another liberal,” read the New Yorker piece on him from March 1, 2010.)