Tuesday, 25 January 2011

He told you so

Paul Krugman, Nobel Laureate, published this prediction in the New York Times in October 2010...

Entitled British Fashion Victims, it decried the fleeting fashion for austerity that was so enthusiastically embraced by the UK government and it predicted some dire outcomes.
"The British government’s plan is bold, say the pundits — and so it is. But it boldly goes in exactly the wrong direction. It would cut government employment  ......at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack.
Why is the British government doing this? The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state. But the official rationale is that there is no alternative......
....... Never mind that British debt as a percentage of national income is actually below its historical average; never mind that British interest rates stayed low even as the nation’s budget deficit soared, reflecting the belief of investors that the country can and will get its finances under control. Britain, declared Mr. Osborne, was on the “brink of bankruptcy.”
What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it."
I haven't seen the NYT blogs today, and anyway it's a bit soon for Mr Krugman to have composed a gloating reprise of his October epistle, (indeed I'm sure he's to nice a man to gloat openly), but I would not be the least surprised to find, in the next few hours, some gentle comment from the Nobel laureate to the effect of "I told you so"....

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