..in 2006-2007 Ireland was running a budget surplus, and had one of the lowest debt levels in the advanced world.Essentially Ryan's speech demonstrated that he does not know the economic status of Europe and he clearly does not understand macroeconomics.
So what went wrong? The answer is: out-of-control banks; Irish banks ran wild during the good years, creating a huge property bubble. When the bubble burst, revenue collapsed, causing the deficit to surge, while public debt exploded because the government ended up taking over bank debts. And harsh spending cuts, while they have led to huge job losses, have failed to restore confidence.
The lesson of the Irish debacle, then, is very nearly the opposite of what Mr. Ryan would have us believe. It doesn’t say “cut spending now, or bad things will happen”; it says that balanced budgets won’t protect you from crisis if you don’t effectively regulate your banks — a point made in the newly released report of the Financial Crisis Inquiry Commission, which concludes that “30 years of deregulation and reliance on self-regulation” helped create our own catastrophe. Have I mentioned that Republicans are doing everything they can to undermine financial reform?
What about Britain? Well, contrary to what Mr. Ryan seemed to imply, Britain has not, in fact, suffered a debt crisis. True, David Cameron, who became prime minister last May, has made a sharp turn toward fiscal austerity. But that was a choice, not a response to market pressure.
And underlying that choice was the new British government’s adherence to the same theory offered by Republicans to justify their demand for immediate spending cuts here — the claim that slashing government spending in the face of a depressed economy will actually help growth rather than hurt it.
So how’s that theory looking? Not good. The British economy, which seemed to be recovering earlier in 2010, turned down again in the fourth quarter. Yes, weather was a factor, and, no, you shouldn’t read too much into one quarter’s numbers. But there’s certainly no sign of the surging private-sector confidence that was supposed to offset the direct effects of eliminating half-a-million government jobs. And, as a result, there’s no comfort in the British experience for Republican claims that the United States needs spending cuts in the face of mass unemployment.
Saturday, January 29, 2011
Paul Krugman responded to the very misleading official Republican response to the State of the Union by Representative Paul Ryan. Ryan's image of Europe is pure fantasy. Ireland and Britain have had their recent financial crises precisely because they followed the prescription being peddled by Ryan and the American conservatives!