Saturday, May 19, 2012

Paul Krugman's Wrong When it Comes to Austerity

What doesn't Krugman understand? The crisis stems from governments spending much more than they take in. Those governments must reduce their spending to bring it in line with what they can afford. That means resources and employment MUST be shifted from the public sector to the private sector. Since this does not happen overnight, there MUST be unemployment and a reduction in living standards and GDP. THIS IS UNAVOIDABLE! The only cure would be prevention, stopping government from getting so out of control to the point where it is 40-50% of GDP as it was in Greece. That is exactly what certain wise Americans are advocating today. Once deficits are no longer supportable, there is no way to avoid the pain. Krugman's idea of more government spending would just prolong and deepen the crisis. It cannot be a solution because an overly large public sector is the problem! This is very similar to drug addiction. An addict can't be cured by giving him a larger dose of drugs. His withdrawal symptoms can be removed for a while, but he cannot be free of drugs without feeling pain and the larger the doze of stimulant, the worse the recovery will be. Giving an addict more drugs to get high is NOT a cure!

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