Thursday, May 31, 2012

Commentary in the Daily Telegraph Slams Paul Krugman for Daring to Criticize Britain’s Fiscal Policy – Policy That Has Produced A New Recession

And In a Moment of Candor An Admission British Policy Won’t Work – But It’s Not Their Fault

Paul Krugman, the Nobel Winning Economist is traveling the world selling books.  Well actually not just any books, he is selling his own book.  Like any good economist, he wants the money, but he already has a lot, so his motivation is also to sell wisdom.  Unfortunately not everyone who should be buying is buying.

There is a snarky commentary in Britain’s Daily Telegraph, and this Forum always likes snarky commentary even when it is testimony with which we do not agree.

Krugman is an economist with attitude, and he thinks Britain is in the midst of a “massive blunder” in economic policy. The UK is the very worst example of austerity economics, he believes, for unlike the poor beleaguered nations of the eurozone periphery, we’ve not had this misery forced on us by the ghastly euro, but have opted for it as an unnecessary penance for the sins of the boom.

First of all the commentator admits austerity is a losing policy.

The fiscal consolidation chosen by the Coalition was always likely to have a negative impact on output, at least in the short term.

In this case the author though first of all claims Britain’s policy hasn’t been implemented yet, since government spending was a positive factor on GDP even though there has been massive loss of jobs by government workers.

In any case, the picture Krugman presents of wrong-headed British austerity is a caricature of the reality, though one admittedly encouraged by the Coalition’s rhetoric. Yesterday’s revised GDP figures, showing that the country is even deeper in recession than we thought, would appear to support the mocking tone in which Krugman condemns the idea of “expansionary austerity”. But where is this austerity? In fact, one of the few positive contributors to output in the last quarter was government spending, which grew by 1.6 per cent. Krugman seems to have forgotten the automatic stabilisers, which because of our welfare state are considerably bigger than in the US.

But the fault is not Britain’s any way, it is the fault of the rest of the world because their weak economies mean weakness in Britain.

To make it work, the Government needed the following wind of decent growth elsewhere in the world economy. Instead, it’s facing a hurricane. We look set to be broken by the storm.

To interpret, Britain was supposed to have austerity, but then be rescued by demand for British products in the rest of Europe, all of whom were implementing austerity also because it is such a good policy.  This works in Germany with its huge export sector, but apparently the author is not aware that every country cannot run a trade surplus.

Finally, if more austerity is yet to come the prospects for Britain are not good, as can be seen in the numbers that reflect a total lack of business confidence, which is the exact opposite of what was supposed to happen.

To have a nice snarky commentary one must have facts and logic on one’s side.  Here is what this commentator has on his side.

He is Prof Paul Krugman, a superstar polemicist who has been described by The Economist as “the most celebrated economist of his generation”. Actually, “celebrated” is not exactly the right word, for Krugman divides opinion like no other. To his followers, he’s a saint; to his detractors, he’s a false prophet with satanic intent.

Sorry folks, name calling is not a substitute for an intelligent refutation of an argument, it is instead an admission that there is no intelligent refutation.

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