Krug fights back against his original editor, tries to explain away the 80s recovery and sticks it to deficit scolds

The original editor who gave Krugman his first commentary job in the mainstream press writes that Krugman is wrong to rail against austerity.  The editor (Michael Kinsley) writes that the austerians just feel that their view will end the economic slump faster.  Krugman and his buddies have big issues with this and claim that austerians really feel like society should endure pain before recovering.  Actually Krugman says the austerians just want the poorer members of society to suffer – the wealthy classes won’t actually feel pain so that is why they have no problem claiming society should endure some pain.

One of the bigger issues that I have wrestled with is how does Krugman explain the economic crisis of the ‘70s and the subsequent recovery in the Reagan ‘80s.  Looking at this scenario it would seem to support a right-wing / austerity approach to solving economic doldrums, which is exactly the opposite of what Krugman proposes.  Krugman now has a post on this.  He writes that the ‘70s crisis was very different than the current one – no large debt, it was really an inflation crisis whereby businesses increased prices and workers demanded higher wage rates.  Honestly this doesn’t make much sense to me and this post seems to lack the technical rigor that I am used to from Krugman.  He implies that the ‘70s crisis could have ended with a reconciliation between workers, business, and the government (seriously Krugman? I’ve never heard of this type of thing before) but instead it was decided that interest rates needed to be raised to kill inflation. Also he mentions that there was still a national funk into the late 80s and this didn’t really start to improve until the mid 90’s.  This seems bizarre, didn’t Reagan get re-elected in a landslide in ’84 and Bush get elected in ’88?    So basically I can say I learned something from his explanation of the cause of the 70s crisis – but he has done nothing to persuade that high interest rates in the early 80’s didn’t solve the 70s crisis.

Krugman makes clear in another post that there is a parallel between the run-up to war in Iraq and the fetish to impose austerity on the economy.  He doesn’t believe deep down that these supporters necessarily want to kill people (war in Iraq) or throw people out of work (austerity) – he thinks that it is because these believers want to look tough.  Tough like Churchill in the 30s and tough like Volker in the late 70s.  This is totally misguided he argues and misses the point – on the economic front this recession is just a technical malfunction that could be corrected with the right policies – but government keeps making things worse with austerity.

He has fun with “deficit scolds” who have made a career of admonishing the public about the deficit and that something must be done now.  Krugman points out that now the deficit is receding and it has nothing to do with the solutions these deficit scolds have prescribed.