Monday, July 7, 2014 provided another example of Paul Krugman explaining why austerity was an insane response to the Great Recession and the New York Times authoring another of its endless articles that assumes that austerity is essential to a eurozone recovery. I have no problem with the NYT reporters providing their rationale for why they concluded that Krugman was wrong and that austerity is the proper response to a recession. My problems are with the NYT reporters ignoring Krugman’s views – views shared by the great bulk of economists – and with their failure to question whether austerity is the proper response to a recession.
Recessions occur when demand becomes seriously inadequate and industries fire workers and decrease production and investment. Austerity further reduces already inadequate demand by reducing public sector demand. Austerity is akin to bleeding the patient (the economy) to make him well. It would, therefore, be exceptionally strange if austerity were to be the optimal response to the Great Recession. We have a great deal of real world experience in dealing with recessions that confirms that austerity is self-destructive in such circumstances.