Krugman called out by Nile Gardiner

In this article, Nile Gardiner highlights Dr. Paul Krugman's slight-of-hand in a recent NYT opinion piece. Europe's woes and travails squarely rest with Keynesian economics, or at least the policies now practiced by Progressives (Democrats and the like) everywhere; more entitlement spending and larger government payrolls creating a 'multiplier' effect that 'grows' the economy, rather than the Monitorist economic view that government should be downsized to make budgets balanced.

How would Dr. Krugman solve the Euro-zone problem (brought about by policies he pushed and currently pushes for the US)? More spending (famously theorizing that the fourth, largest stimulus passed by Democrats in the spring of 2009 was undersized-- less than half of what should have been spent)?  Enlarging entitlements and the recipient pool? More environmental regulations? More union work-rules and constrictions on free-enterprise?

Enjoy the article.

Paul Krugman is rewriting history now that the eurozone, beloved by US liberals, is going down in flames

Paul Krugman: wrong again

New York Times columnist Paul Krugman is right about one thing, when he says: “now, with Italy falling off a cliff, it’s hard to see how the euro can survive at all”.

But the rest of his analysis of the crisis in Europe, as well as the causes, is in the realm of pure fantasy. In his recent piece entitled “Legends of the Fail”, Krugman rejects the idea that “Europe’s woes reflect the failure of welfare states in general, and that Europe’s crisis makes the case for immediate fiscal austerity in the United States”.

It’s true that all European countries have more generous social benefits — including universal health care — and higher government spending than America does. But the nations now in crisis don’t have bigger welfare states than the nations doing well — if anything, the correlation runs the other way. Sweden, with its famously high benefits, is a star performer, one of the few countries whose G.D.P. is now higher than it was before the crisis. Meanwhile, before the crisis, “social expenditure” — spending on welfare-state programs — was lower, as a percentage of national income, in all of the nations now in trouble than in Germany, let alone Sweden.

Oh, and Canada, which has universal health care and much more generous aid to the poor than the United States, has weathered the crisis better than we have. The euro crisis, then, says nothing about the sustainability of the welfare state.

Krugman cites Sweden as an example of a social welfare success in Europe, but fails to mention two important points. Firstly, in recent years, Sweden has begun rolling back the welfare system and government expenditure while adopting important free market reforms. Secondly, Sweden decided to stay out of the eurozone, another key reason why it has so far kept out of the financial mess engulfing southern Europe. As Johnny Munkhammar, a Swedish member of parliament noted in a piece for The Wall Street Journal in January, Sweden owes its success not to welfare statism but to reforms that have increased economic freedom, including greater competitiveness in the provision of health care and other public services:

For many years, foreign policy-makers have pointed to Sweden as a positive model to follow, making Swedes like me proud. Too often, though, foreigners have drawn the wrong lessons from Sweden's success. For instance, whenever I give a lecture, anywhere in Europe, about economic reform, I always get the following response: "But you come from Sweden, which is socialist and successful—why should we launch free-market policies?"
The simple truth is that Sweden is not socialist. According to the World Values Survey and other similar studies, Sweden combines one of the highest degrees of individualism in the world, solid trust in well-functioning institutions, and a high degree of social cohesion. Among the 160 countries studied in the Index of Economic Freedom, Sweden ranks 21st, and is one of the few countries that increased its economic freedoms during the financial crisis. Sweden gets higher scores for liberal markets than Germany and Belgium, or reformers such as Cyprus and Georgia.

All of the European countries now in deep trouble in Europe – Greece, Italy, Spain and Portugal – are in the 17-member eurozone, and have deeply entrenched welfare systems, which have not been reformed along the lines of the Swedish model. Germany also operates a large welfare state and generous pensions structure that in the long run is unsustainable, with its rapidly aging population. But it has avoided the current financial contagion by maintaining a budget surplus with the introduction of strict austerity measures to limit government spending, of the kind that Krugman would no doubt balk at if applied in the United States.

In his piece Mr Krugman also makes the astonishing claim that the doomed European Project was originally “cheered” by American conservatives but “questioned” by US liberals:

The attempt to create a common European currency was one of those ideas that cut across the usual ideological lines. It was cheered on by American right-wingers, who saw it as the next best thing to a revived gold standard, and by Britain’s left, which saw it as a big step toward a social-democratic Europe. But it was opposed by British conservatives, who also saw it as a step toward a social-democratic Europe. And it was questioned by American liberals, who worried — rightly, I’d say (but then I would, wouldn’t I?) — about what would happen if countries couldn’t use monetary and fiscal policy to fight recessions.

I don’t recall “American right-wingers” cheering on the rise of the single currency, and the growth of a European superstate. Quite the opposite, in fact. British-style Euroscepticism has always been fashionable among US conservatives who have long admired Lady Thatcher’s views on Europe, but mocked and derided by the State Department and by the Left. American liberals in contrast have long been among the biggest supporters of the European Project. Witness the fawning Eurofederalism of the Obama administration as well as bastions of the ruling liberal elites such as The New York Times. Krugman is rewriting history now that the European model, beloved by East Coast liberals, is going down in flames.

The reality that Krugman refuses to accept is that Europe offers a glimpse of America’s future if it continues down the path of European-style big government. The root of Europe’s financial crisis lies in decades of over-spending and over-borrowing, largely to pay for overgrown and bloated welfare systems, vast public sectors, and incredibly generous pension plans. Europe has a huge entitlements disaster heading its way, with graying electorates unable to sustain the status quo. Added to this has been the disastrous euro experiment, which has created a one-size fits all approach for 17 EU countries, with varying levels of economic advancement. It has been a huge leap into the dark, without a shred of democratic accountability.

There is only one path Europe can take if it is to avoid economic meltdown: dramatic cuts in public spending, the dismantling of its welfare states, the removal of crippling taxes and business regulations, the downsizing of the public sector, and a return to self-determination for EU member states. It is Europe’s lack of fiscal responsibility, economic freedom, and national sovereignty, that are at the heart of the current economic crisis, and the United States must do all it can to avoid European-style decline.