Premature anti-confidence fairy-ist Paul Krugman comments on the entirely predicatble news that Britain officially has a double dip recession on its hands:
When David Cameron became PM, and announced his austerity plans — buying completely into both the confidence fairy and the invisible bond vigilantes — many were the hosannas, from both sides of the Atlantic. Pundits here urged Obama to “do a Cameron”; Cameron and Osborne were the toast of Very Serious People everywhere.
Now Britain is officially in double-dip recession, and has achieved the remarkable feat of doing worse this time around than it did in the 1930s.
Britain is also unique in having chosen the Big Wrong freely, facing neither pressure from bond markets nor conditions imposed by Berlin and Frankfurt.
Now, the defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence? Basically, the expansionary aspect should already have kicked in; it’s all contraction from here.
It’s hard to believe the Austerian excuse is that it’s not their fault because the real pain hasn’t even begun, but there you have it.
As for Murrica, Krugman has this:
That spike early on is Census hiring; once that was past, the Obama years shaped up as an era of huge cuts in public employment compared with previous experience. If public employment had grown the way it did under Bush, we’d have 1.3 million more government workers, and probably an unemployment rate of 7 percent or less.
And let’s not forget that it’s only thanks to the Tea Party being total morons that we were spared the full Austerian Monty. If the powers that be had had their way, our confidence fairies would all be hitting the ground and splatting at our feet as well.
Update: When academics face off:
Ben Bernanke responds to my magazine piece; as I see it, in effect he declared that he has been assimilated by the Fed Borg:
I guess the, uh, the question is, um, does it make sense to actively seek a higher inflation rate in order to, uh, achieve a slightly increased pace of reduction in the unemployment rate? The view of the committee is that that would be very, uh, uh, reckless. We have, uh, we, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable, in that we’ve been able to take strong accommodative actions in the last four or five years to support the economy without leading to a, [indiscernible] expectations or destabilization of inflation. To risk that asset, for, what I think would be quite tentative and, uh, perhaps doubtful gains, on the real side would be an unwise thing to do.
Notice the framing — “a slightly increased pace of reduction in the unemployment rate”. It’s basically an assertion that we’re doing all right, maybe could do a bit better, but not worth endangering the Fed’s reputation — oh, and as long as we don’t have actual deflation, no problem.
Read Krugman’s article for the whole ugly tale. What is millions of people suffering and having their futures irrevocably altered in the face of the Fed’s reputation being (further) sullied? Priorities!
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