Posted on 1st May 2012
@"There is no alternative to austerity" writes Gideon Rachman: "In a highly-taxed, highly-regulated, highly-indebted continent like Europe, more state-funded public works would simply build another road to nowhere."
No you are wrong. Austerity and non utilization of savings in a productive manner will lead to further serious slowdowns.
Capitalism works around formation of capital; banking system provides the basis of the capital formation but it is usage of this unique proprietary trust with due diligence that mandarins of EU have botched. They are catastrophic managers leading EU to its natural kismet.
Austerity is a must when waste is rampant; it is a self-destructive cycle when widespread and extensive squandering is associated with it.
EU commissioners are quintessence and personification of waste. EU is the sum total of squandered resources, unless they start learning how to use borrowed money properly, they will not come out of this economic pothole.
Pork barrel projects, subsidies to the farmers and huge allocation to non productive usage of funds is killing European zone. They need to invest in areas where borrowing justifies itself many times over. One area is to put jobless to work, train them and stop giving them cradle-to-grave lifelines. Cut employment taxes on those who employ unskilled and train them, help increase productivity of people by making labor market mobile and mass training. Cut taxes, do not increase them; borrow to create wealth not to subsidize those who are ‘wedged’ into the coffers of the state like leeches.
Austerity is the wrong prescription, spending is the answer. Krugman: The basic issue, says Krugman, is a lack of demand. American consumers and businesses, aren't spending enough, and efforts to get them to open their wallets have gone nowhere. Krugman's solution: The federal government needs to step in and spend. A lot. On debt relief for struggling homeowners; on infrastructure projects; on aid to states and localities; on safety-net programs. Call it "stimulus" if you like. Call it Keynesian economics, after the great economic thinker (and Krugman idol) John Maynard Keynes, who first championed the idea that government has an essential role in saving the free market from its own excesses. Whatever you call it, it worked in the late nineteen-thirties and forties, when the U.S. government started shelling out on the military in the build-up to World War II, bringing an abrupt end to years of economic misery and laying the foundation for decades of prosperity. Krugman is not calling for an increase in military spending, much less a global war! But the WWII example shows that large-scale government spending can kick-start the economy. It worked then, he says, and it will work now.
Krugman's diagnosis and prescriptions cut sharply against the conventional wisdom in Washington, according to which "austerity," - throttle back on government spending, tackle the budget deficit now - is the way to get the economy back on track. Not only is this wrong, he argues, it's making a bad situation even worse. He writes: "Now is the time for the government to spend more, not less, until the private sector is ready to carry the economy forward again." On the positive side, people are starting to look at the train wreck that is Europe, where austerity has failed - and how - to produce growth, and at our own protracted slump, and concluding that people like Krugman - who, truth be told, has been right about a lot in recent years - might be onto something. "All indications are that the economy will remain weak for a very long time unless our policy makers change course," he writes in his introduction. "And my aim here is to bring pressure, by means of an informed public, to get that course change and bring an end to this depression."
Krugman, who dedicates his book to "the unemployed, who deserve better," spoke to RollingStone.com by phone the other day from his home in Princeton, New Jersey.