David Cameron’s Herbert Hoover impression

Paul Krugman excoriates our coalition of deficit hawks.

Paul Krugman, the Nobel Prize-winning economist and professor of economics and international affairs at Princeton University, has issued a denunciation of Europe's deficit hawks -- including our own debt-obsessed double act, Cameron and Osborne -- in his latest column for the New York Times, reproduced in today's Guardian.

The column, entitled "21st-century depression", says the world has experienced two big setbacks in recent economic history (in the 1870s and the 1930s), but argues that we could be on the verge of a third, which "will be primarily a failure of policy". He writes:

Around the world -- most recently at the weekend's deeply discouraging G20 meeting -- governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

Krugman excoriates policymakers across the Continent for failing to learn the clear and undeniable lessons of history and, in particular, the history of the Great Depression. He points out:

. . . both the US and Europe are well on their way towards Japan-style deflationary traps.

In the face of this grim picture, you might have expected policymakers to realise that they haven't yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn't doing much better. The Fed seems aware of the deflationary risks -- but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity -- but because Republicans and conservative Democrats in Congress won't authorise additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

But the key point in Krugman's column, which the deficit hawks have yet to address, is how the deflationary antics of European elites are so self-evidently counterproductive, not to mention horribly self-destructive:

The hardliners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it's true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hardliners' medicine.

It's almost as if the financial markets understand what policymakers 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.

In the years to come, we'll regret not listening to the likes of Krugman and his fellow Nobel Prize-winner Joe Stiglitz, and preferring instead the "unavoidable" Budgets of those neo-Hooverites, David Cameron, George Osborne, Nick Clegg and Danny Alexander.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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PMQs review: Jeremy Corbyn bids for the NHS to rescue Labour

Ahead of tomorrow's by-elections, Corbyn damned Theresa May for putting the service in a "state of emergency".

Whenever Labour leaders are in trouble, they seek political refuge in the NHS. Jeremy Corbyn, whose party faces potential defeat in tomorrow’s Copeland and Stoke by-elections, upheld this iron law today. In the case of the former, Labour has already warned that “babies will die” as a result of the downgrading of the hospital. It is crude but it may yet prove effective (it worked for No to AV, after all).

In the chamber, Corbyn assailed May for cutting the number of hospital beds, worsening waiting times, under-funding social care and abolishing nursing bursaries. The Labour leader rose to a crescendo, damning the Prime Minister for putting the service in a “a state of emergency”. But his scattergun attack was too unfocused to much trouble May.

The Prime Minister came armed with attack lines, brandishing a quote from former health secretary Andy Burnham on cutting hospital beds and reminding Corbyn that Labour promised to spend less on the NHS at the last election (only Nixon can go to China). May was able to boast that the Tories were providing “more money” for the service (this is not, of course, the same as “enough”). Just as Corbyn echoed his predecessors, so the Prime Minister sounded like David Cameron circa 2013, declaring that she would not “take lessons” from the party that presided over the Mid-Staffs scandal and warning that Labour would “borrow and bankrupt” the economy.

It was a dubious charge from the party that has racked up ever-higher debt but a reliably potent one. Labour, however, will be satisfied that May was more comfortable debating the economy or attacking the Brown government, than she was defending the state of the NHS. In Copeland and Stoke, where Corbyn’s party has held power since 1935 and 1950, Labour must hope that the electorate are as respectful of tradition as its leader.

George Eaton is political editor of the New Statesman.