Paul Krugman’s article from several days ago (see below) drives home the point that “deficit hawkism” is NOT just an American lunacy – it’s somehow ascended to the prevailing “conventional wisdom” globally. As I pointed out in a previous recent post, “This has some very bad implications for public transportation funding, the transit budget crisis, public transit services and ridership, and development of crucial improvements such as new rail starts.”
It’s also important for public transportation professionals and advocates to perceive that public transport budget problems – at the agency level and the industry level, in country after country – are occurring in this context of GLOBAL crisis and GLOBAL austerity policies. Public transport supporters need to get this across to the public, in particular to respond to the campaign by transit adversaries to pillory each individual transit system, making it appear that its budget difficulties are the result of incompetent management and planning, budgetary wastefulness, and, most of all, the demon rail.
New York Times
June 6, 2010
Lost Decade, Here We Come
The deficit hawks have taken over the G20:
Those countries with serious fiscal challenges need to accelerate the pace of consolidation, it added. We welcome the recent announcements by some countries to reduce their
deficits in 2010 and strengthen their fiscal frameworks and institutions.
These words were in marked contrast to the G20s previous communiqué from late April, which called for fiscal support to be maintained until the recovery is firmly driven by the private sector and becomes more entrenched.
Its basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.
But don’t we need to worry about government debt? Yes but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future
debt by less than 0.5 percent of GDP.
The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.
But what about Greece and all that? Look, right now sovereign debt problems are taking place in countries with a very specific problem: theyre part of the euro zone, AND they’re badly overvalued thanks to huge capital inflows in the good years; as a result theyre facing years of grinding deflation. Counties not in that situation are not facing any pressure from the markets for immediate cuts; as of this morning, 10-year bonds were yielding 3.51 in Britain, 3.21 in the US, 1.27 in Japan.
Yet the conventional wisdom now is that these countries must nonetheless cut not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn’t) sometime in the future.
Utter folly posing as wisdom. Incredible.
Krugman: Lost Decade, Here We Come – Sent by the Light Rail Now Folks