Decca Aitkenhead “Paul Krugman: 'I'm sick of being Cassandra. I'd like to win for once'” http://www.guardian.co.uk/business/2012/jun/03/paul-krugman-cassandra-economist-crisis
He doesn't expect it will be an easy message to sell, though. "As far as I can make out, the serious opposition to the coalition's policy is basically a half-dozen economists, and it looks as if I'm one of them – which is really weird," he laughs, "since I'm not even here." Visiting London last week, he met lots of what he calls Very Serious People: "And there are lots of things these people say that sound very wise and sensible. But it's all upside-down; it's all wrong. Yet the power of their orthodoxy – even when it's failing – is quite awesome."
These Very Serious People present economics as a morality play, in which debt is a sin, and we have all sinned, so now we must all pay the price by tightening our belts together. They tell us the crisis will take a long time to resolve, and must inevitably be painful. All of this, according to Krugman, is the opposite of the truth. Austerity is a self-imposed collective punishment that is not just unnecessary, but won't work. We know what would work – but for complex political and historical reasons that his book explores, we have chosen to forget. "Ending this depression," he writes, "should be, could be, almost incredibly easy. So why aren't we doing it?"
Crucially, Krugman continues, "what's true for an individual is not true for society as a whole". The analogy between a household budget and a national economy is "seductive, because it's very easy for people to relate to", and it makes some sense when we're not in the grip of a macro-economic crisis. "But when we are, then individually rational behaviour adds up to a collectively disastrous result. It ends up that each individual trying to improve his or her position has the collective effect of making everybody worse off. And that's the story of our times."
"That's the interesting thing. The actual verdict of the markets, for countries that have their own currencies, has been that they don't really care at all in terms of what you're doing in short-run policy." Likewise, the danger of being downgraded by a credit rating agency has been wildly overstated. "We saw it in Japan in 2002; they had the downgrade, and nothing happened. Which led us to predict that would happen for the US," whose credit rating was downgraded by one agency last year*2. "And it was exactly right. Nothing happened."
*1:See also http://d.hatena.ne.jp/sumita-m/20071030/1193719318 http://d.hatena.ne.jp/sumita-m/20080421/1208706183 http://d.hatena.ne.jp/sumita-m/20081007/1223316170 http://d.hatena.ne.jp/sumita-m/20081013/1223899624 http://d.hatena.ne.jp/sumita-m/20090810/1249921507 http://d.hatena.ne.jp/sumita-m/20091010/1255147141 http://d.hatena.ne.jp/sumita-m/20100707/1278514532 http://d.hatena.ne.jp/sumita-m/20100826/1282799908 http://d.hatena.ne.jp/sumita-m/20110111/1294690248 http://d.hatena.ne.jp/sumita-m/20110214/1297620740 http://d.hatena.ne.jp/sumita-m/20110713/1310569835 http://d.hatena.ne.jp/sumita-m/20110922/1316669705 http://d.hatena.ne.jp/sumita-m/20110203/1296712681
*2:Larry Elliott, Jill Treanor, Dominic Rushe and David Batty “US credit rating downgrade prompts warning from China” http://www.guardian.co.uk/business/2011/aug/06/us-credit-rating-downgrade-china