Is well worth reading:
But it’s worth stepping back to look at the larger picture, namely the abject failure of an economic doctrine — a doctrine that has inflicted huge damage both in Europe and in the United States.Krugman goes on to praise the government of Iceland (led by Jóhanna Sigurðardóttir) which took a different path in terms who should suffer. In Iceland, those who gambled with the financial system were punished and the banks were not bailed out.
The doctrine in question amounts to the assertion that, in the aftermath of a financial crisis, banks must be bailed out but the general public must pay the price. So a crisis brought on by deregulation becomes a reason to move even further to the right; a time of mass unemployment, instead of spurring public efforts to create jobs, becomes an era of austerity, in which government spending and social programs are slashed.
This doctrine was sold both with claims that there was no alternative — that both bailouts and spending cuts were necessary to satisfy financial markets — and with claims that fiscal austerity would actually create jobs. The idea was that spending cuts would make consumers and businesses more confident. And this confidence would supposedly stimulate private spending, more than offsetting the depressing effects of government cutbacks
It is hard to know if one small country can manage to run a complete different policy successfully. But at least Iceland tried.
Here's the bit in the above quote which I find totally idiotic:
The idea was that spending cuts would make consumers and businesses more confident. And this confidence would supposedly stimulate private spending, more than offsetting the depressing effects of government cutbacksPerhaps there are studies which support this idea. But I cannot see how it could be true. What kind of consumer confidence is created when consumers are told that their safety net is fraying, that the value of most of their wealth (in their dwelling) has been drastically cut, that they either are without a job or fear the loss of a job in the future? Who in their right minds would start spending more under those conditions?
No wonder that Krugman has coined the "confidence fairy" as the new religion of the powers that be. At best that "confidence fairy" is an evil one, waving its wand to make us very confident that we have been f***ed by the system.
I can't help thinking that the real reason for the austerity policies is a moral one. We Are To Suffer for our evil deeds, even if we did not commit any. But those who are responsible for the mess in which we find ourselves may not have to suffer at all if they are sufficiently wealthy.