Nobel laureate Paul Krugman argues in this Prospect roundtable that countries could beat recession by spending more. Leading commentators ask whether this would make things worseby Paul Krugman / June 20, 2012 / Leave a comment
Published in July 2012 issue of Prospect Magazine
Paul Krugman, Nick Carn, Rudi Bogni, Kwasi Kwarteng, Stephanie Flanders, Richard Lambert, Samuel Brittan, Shriti Vadera, Gavyn Davies
“Not now,” is Paul Krugman’s short answer to the question of when governments should make cuts to repair their finances. Austerity should be reserved for the good times, he argues; in the bad times—like now—governments should pour money into public spending projects to keep recession at bay.
Four years after the start of the financial crisis, those arguments (and the 2008 Nobel Prize in economics) have made Krugman a figurehead of the case for large quantities of government spending, as advocated by John Maynard Keynes. “Not since the 1930s have so many Americans found themselves seemingly trapped in a permanent state of joblessness,” he says. Recession or even sluggish recovery is unnecessary, in the United States and Europe, he says, in his new book End This Depression Now! The lessons of the 1930s hold good, he argues.
The growth question—or cuts versus spending, as it is called in Britain—is the greatest political and economic debate of these years. It is central to the clash over how to resolve the eurozone crisis, and to President Barack Obama’s battle for re-election. Beyond that, it is at the heart of the affliction of the developed world: high debt and deficits, low or zero growth, and ageing populations. Some, looking at the technocratic governments in Italy and Greece, and the standoff between the White House and Congress, have asked whether democracy can deliver an answer: can politicians ever persuade people to vote for austerity?
Krugman’s response is they shouldn’t try; his critics say his prescription will only make the problem worse. In this extended Prospect roundtable, leading economists and commentators take on Krugman over the hardest question of our time.
Paul Krugman: Let me tell you why I wrote the book. I thought it might be helpful, especially now that austerity policies are so visibly failing, to go on the offensive, and say how easy it should be to get us out of the severe slump that we are in.