First as tragedy, then as depressingly avoidable tragedy

31/01/2012 § Leave a comment

This piece by Stephen Castle (NY Times), via Brad DeLong, seemed somehow familiar:

Bowing to mounting evidence that austerity alone cannot solve the debt crisis, European leaders are expected to conclude this week that what the debt-laden, sclerotic countries of the Continent need is a dose of economic growth.

A draft of the European Union summit meeting communiqué calls for ‘‘growth-friendly consolidation and job-friendly growth,’’ an indication that European leaders have come to realize that austerity measures, like those being put in countries like Greece and Italy, risk stoking a recession and plunging fragile economies into a downward spiral.

So, imposing austerity on fragile economies in the hopes of extracting onerous debt payments might be a bad idea? It doesn’t just risk pushing the economies into downward spirals, of course. There are the potential impacts on the political choices of the people, too (assuming the EU still allows democratic elections rather than technocratic country managers imposed by Brussels).

Where have we heard this before? Oh, yes, Keynes described what could happen when debt repayment arrangements are onerous, in The Economic Consequences of the Peace. But then, his ideas ‘are fairy tales that have been proved false’, no?

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