By Joseph A. Klein, CFP United Nations Columnist ——Bio and Archives--January 28, 2011
American Politics, News | CFP Comments | Reader Friendly | Subscribe | Email Us
Most European economies suffer from the ill effects of some combination of easy money, unsustainable social spending and big budget deficits. Europe's challenge is no longer just economic. It's also social and political. Cherished values and ideals are under assault. The euro, intended to nurture unity, has bred discord, as countries assign blame and argue over sharing costs. The social contract is being rewritten, with government benefits and protections being cut.Krugman spent the bulk of his column entitled "Their Own Private Europe" on Ireland and Britain, in order to purportedly debunk the GOP thesis that unchecked deficit spending on unnecessary government programs leads to economic crisis. Krugman claimed that the experience in Ireland or Britain
actually refutes the current Republican narrativeLets start with Ireland, where Krugman may be partially right. Before Ireland had to deal with its bank melt-down, it was running a budget surplus. From 1987 to 2000, annual economic growth averaged 6.8 percent. Unemployment had fallen from 16.9 percent to 4.3 percent. Then the housing bubble burst, leaving Irish banks in dire straits. Krugman blamed Ireland's problems on "out-of-control banks," which "ran wild during the good years." When the bubble burst, revenue dried up and the deficit surged as the government scrambled to save the reckless banks from ruin. Krugman concluded that the lesson to be drawn from Ireland's experience is better bank regulation, not cuts in government spending. Krugman is half right, which means he is also half wrong. Bailing out the banks did precipitate Ireland's deficit problems. But the question is why the Irish government decided to bail out their out-of-control banks rather than let the marketplace punish the losers or turn to the European Union for more targeted assistance at that time. More...
View Comments
Joseph A. Klein is the author of Global Deception: The UN’s Stealth Assault on America’s Freedom.