Home Politics Politics News

Debt Talks: Why Fiscal Austerity Is a Disaster for the Economy

debt ceiling

Right-wing fanatics in Congress may block a necessary rise in the debt ceiling, potentially wreaking havoc in world financial markets.

Chip Somodevilla/Getty Images

The world is looking at not one but two looming crises, writes Times columnist Paul Krugman, “either of which could produce a global disaster.” In the United States, if Congress fails to reach a deal on raising the debt ceiling, markets will implode, causing a “recovery-ending event” in the words of Fed chairman Ben Bernanke; in Europe, leaders managed to hammer out an agreement this week to tackle the E.U.’s debt crisis, but it might not be enough to reassure the markets and stave off economic disaster. But even the immediate crisis is averted, Krugman says, things aren’t going to improve. That’s because the deals being struck “are almost guaranteed to make the broader economic slump worse,” perpetuating what he calls “the Lesser Depression.” The economy is still in a slump because there isn’t enough spending going on — not by consumers, not by businesses, not by government. Yet the order of the day in policy circles on both sides of the Atlantic is “drastic fiscal austerity” – i.e. spending cuts. Which leaves Krugman worried that we’re “set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery” and prolonged the Great Depression.

‘The Lesser Depression’ [Paul Krugman, New York Times]

Show Comments

Newswire

Powered by
Close comments

Add a comment