Just a few years ago, global leaders knew they had to focus on job creation before they tackled deficits. But that strategy “has been abandoned in the face of phantom risks and delusional hopes,” writes Paul Krugman in the New York Times. Now, it’s all about reducing the deficit through austerity—even though that idea has failed Portugal, Ireland, and Great Britain. To calm markets, a struggling Ireland imposed “savage austerity measures on ordinary citizens”—and America’s deficit hawks applauded.
“Since then,” however, “the interest rate on Irish debt has doubled,” and the country’s jobless rate is at 13.5%. Britain, meanwhile, made cuts on the assumption that “private spending would more than make up for the government’s pullback.” Now, UK economic growth “has stalled, and the government has marked up its deficit projections as a result.” Instead of an “austerity delusion,” we need a “serious fiscal plan”—one that would fix long-term problems like health care costs and probably raise taxes. But in today’s political climate, such ideas don’t fly.