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Paul Krugman: U.S. faces ruin if it follows Ireland's ‘austerity’

NY Times columnist says policies in Ireland a huge failure

By
CATHY HAYES,
IrishCentral.com Staff Writer
Published Saturday, March 26, 2011, 8:45 AM
Updated Saturday, March 26, 2011, 9:11 AM

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Paul Krugman


Ireland's economic policy is a disaster which if followed by the United States would lead to ruin says Nobel Prize winning economist Paul Krugman, The New York Times columnist.

Ireland is used by America’s most influential economic writer  as an example of how the idea of austerity is a delusion.

He says Ireland, Greece and Britain are examples of how spending cuts have failed to bring a rise in confidence or benefit growth or the jobs market.

He points out that "the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens."

The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.

That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.

Giving the United States as an example Krugman says that "tax increases and cuts in government spending would depress economies further, worsening unemployment…So jobs now, deficits later was and is the right strategy."

He concludes by referring back to Europe as an example of what not to do where the British as well now find themselves in deep problems because of deficit reduction above all policies all in the name of getting confidence back in the financial system.

He warns, "The confidence fairy won’t save us from the consequences of our folly."

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9 Comments

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FastEddy | Mar 28, 2011, 12:08 PM EDT
Just what Ireland and US need: advise for demo-fascist wolf in keynesian screwup clothing. This downtown clown has never held any job except as newspeak/doublespeak elitist pretend egghead pundit.

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jacersagain | Mar 27, 2011, 04:45 AM EDT
Mr. Krugman, for all his eminent knowledge, should know the answer.. as we who are sensible know... #There's a hole in the bucket, dear Liza, dear Liza, There's a hole in the bucket, dear Liza, There's a hole. Then fix it dear Henry, dear Henry, dear Henry, Then fix it dear Henry, dear Henry, fix it. With what should I fix it, dear Liza, dear Liza, With what should I fix it, dear Liza, with what? With a straw, dear Henry, dear Henry, dear Henry, With a straw, dear Henry, dear Henry, with a straw. But the straw is too long, dear Liza, dear Liza, The straw is too long, dear Liza, too long. Then cut it dear Henry, dear Henry, dear Henry, Then cut it dear Henry, dear Henry, cut it! With what shall I cut it, dear Liza, dear Liza, With what shall I cut it, dear Liza, with what? With an ax, dear Henry, dear Henry, dear Henry, With an ax, dear Henry, an ax. But the ax is too dull, dear Liza, dear Liza, The ax is too dull, dear Liza, too dull. Then, sharpen it, dear Henry, dear Henry, dear Henry, Then sharpen it dear Henry, dear Henry, sharpen it! With what should I sharpen it, dear Liza, dear Liza, With what should I sharpen, dear Liza, with what? With a stone, dear Henry, dear Henry, dear Henry, With a stone, dear Henry, dear Henry, a stone. But the stone is too dry, dear Liza, dear Liza, The stone is too dry, dear Liza, too dry. Then wet it, dear Henry, dear Henry, dear Henry, Then wet it dear Henry, dear Henry, wet it. With what should I wet it, dear Liza, dear Liza, With what should I wet it, dear Liza, with what? With water, dear Henry, dear Henry, dear Henry, With water, dear Henry, dear Henry, with water. But how shall I get it?, dear Liza, dear Liza, But how shall I get it?, dear Liza, with what? In the bucket, dear Henry, dear Henry, dear Henry, In the bucket, dear Henry, dear Henry, in the bucket! But there's a hole in the bucket, dear Liza, dear Liza, There's a hole in the bucket, dear Liza, a hole. There's a hole.#

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kurtjohnson | Mar 27, 2011, 12:48 AM EDT
The reasons behind Ireland's current troubles are not the austerity but the fact that were extorted into a taking responsibility for bailing out the creditors of multi-national banks. The fact that Ireland's natural resources (e.g. oil, gas, fishing waters) were all given away doesn't help matters.

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kurtjohnson | Mar 27, 2011, 12:46 AM EDT
The nobel prize is now a politically driven award. Keynsians such as Krugman haven't been right about anything - Keynsianism has done for economics what pragmatism did for education. Tom Swinford is correct - Ireland like the rest of Western economies was based on the fiction that it could consume its way to prosperity. A healthy economy reinvest its savings as a means of forming capital whereas an ill one needs to perpetually borrow.

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jamthecat | Mar 26, 2011, 05:47 PM EDT
Let me see...Paul Krugman has a Nobel in Economics, a discipline he actually teaches, and has been pretty much right about how things have been going since the beginning of Bush-2's tax giveaway to the rich...but because his warning don't fit the ideology of the day, he's wrong and he needs to explain things that have no bearing on the issue at hand. Uh-huh.

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khadabux | Mar 26, 2011, 04:55 PM EDT
I believe Krugman is right in his assessment. Ireland, a nation of less than 5 million people with at 2.5 million tax paying workers will take several generations to repay its debts but it may be even longer if the working taxpaying population is further reduced by layoffs. The wealthiest entity in Ireland is probably the RC Church. Maybe it is time for them to help out financially. After all it is wealth accumulated from its Irish parishoners.

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cillowen | Mar 26, 2011, 11:18 AM EDT
krugman needs to explain the israeli model which seems immune from money dosage showered by americans.

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TomSwinford | Mar 26, 2011, 10:10 AM EDT
Normally I'm with Krugman but not this time. He suggests that the imposition of "savage austerity" on its population by the Irish government - as a means to revive the economy, is delusionary. What was really delusionary was the so-called Celtic Tiger. A nation out of control on crack cocaine, its success externally derived, not home grown. Even as tax revenues soared spending soared more. When responsible nations, like Germany, saved for the inevitable rainy day, Ireland squandered like a drunken sailor, much of the wealth going to outrageous salaries and benefits for the political class and the public sector. Krugman says "jobs now, deficits later." We've heard that crack before - it's been tried before, here in the U.S. Problem is, without fail, we simply kick the deficit can down the road. Whether the jobs come or not, the deficit continues to balloon - and it will until complete catastrophe is staring us in the face. Then we'll know the meaning of "savage austerity." Therein is the bankruptcy (pun intended) of Krugman's argument.

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LoyalCitizen | Mar 26, 2011, 09:23 AM EDT
Destroying customers never helps an economy...Irish Politicians only want to finance pretentious American Corporations and create an image of a smart economy, which is in contradiction to the fact that most Irish Politicians are dumb and corrupt. Being dumb and corrupt is a recipe for disaster.

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