Paul Krugman's new book challenges the consensus view of deficit cutting. Channel 4 News's Neil Macdonald looks at the economist's call for a return to the ideas of John Maynard Keynes.
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Economists are often caricatured as pointy-headed inhabitants of the very highest of ivory towers, dreaming of ever more abstract economic models, showing no interest in the real world and striving always to avoid giving a straight answer to any question.
Paul Krugman, professor of economics at Princeton, does not fit this model. There's no doubting his academic credentials - he won the Nobel Prize for economics in 2008. But in the current crisis, he's shown himself very happy to get involved in the public debate about what should be done to re-energise the world's faltering economy - and in particular the current wisdom in the UK and the Eurozone that government deficits should be cut back now. Through many articles in The New York Times, he's taken the argument to his rivals - often in rather uncompromising terms.
His latest salvo in the debate is his new book End This Depression Now! Not many economists include exclamation marks in their book titles, and it's an early indicator that he's happy to give a straight answer to the question: what should be done now?
And it's his answer to this question that makes Professor Krugman an important voice in the current debate. He believes that we can find the solution to our problems by looking at the ideas of John Maynard Keynes during the depression of the 1930s. Then, as economic output fell, governments in the UK and the USA believed that their responsibility was to balance their budgets by cutting spending.
Keynes argued that this intensified the downturn. If governments cut back even as households and companies did they same, then demand across the economy would fall. This would push up unemployment, hitting family incomes and cutting sales for businesses. So they would cut back even more. And so, in Keynes' view, a vicious cycle could take hold.
Keynes believed only the government could break out of this, by borrowing more and using the money to stimulate the economy. Professor Krugman says governments today are repeating the mistakes of the 1930s, going for tough austerity just when the private sector is cutting back as well. The result: stagnation for the UK, catastrophe for Greece.
Challenging the consensus
Professor Krugman is leading the charge against what's undoubtedly become the consensus view, and its surely important that any consensus faces a challenge. Of course, standing against the tide doesn't necessarily make you right.
Many of Professor Krugman's critics worry about the idea of borrowing more money right now. They believe that a bigger deficit could spook the private investors who lend money to the government.
If those investors worry about whether a government can pay back what its borrowed, then they may demand higher interest rates to compensate them for the risk of lending. And of course higher interest rates could hobble any economic recovery.
So is Professor Krugman or his critics in the right? The performance of the British economy over the next few years will settle that.