RACK ONE UP FOR THE LIBERAL NOBEL LAUREATE

On Sunday I watched part of Fareed Zakaria’s GPS, arguably the best of the Sunday talk shows. I like GPS because of the quality of Zakaria’s guests, which combined with his penetrating questions makes the show an educational treat. One of the guests Sunday was Paul Krugman, formerly an economics professor at MIT, currently at Princeton, and a Nobel laureate.  Krugman, well known as a liberal, was pitching the idea advanced by Francois Hollande, France’s new president, who was elected by preaching that austerity  is no way for Europe (or the United States, for that matter) to climb out of the severe recession that has been running rampant through the advanced economies since 2008.

Krugman had a couple of hard to deny points. In particular, he refused to compare the United States’ debt situation with that of Greece, Italy, Spain or Portugal, the southern tier of the European countries that seem to be in trouble with overpriced labor, bloated civil servant cores, and too much debt. His point, certainly valid, was that the United States borrows in its own currency.  I certainly agree that our country, with a combined fiscal and monetary policy by a single federal government, is in a far stronger position to deal with economic challenges than any of the European governments who have joined the common Euro currency, yet still maintain widely different fiscal, tax, language, and economic bases.  Of course that’s the main reason why Great Britain, whose major trading partner is the European Union, has refrained from adopting the Euro currency by keeping its own currency – Sterling.

The idea of the Euro, a single currency used by many different sovereign entities, is a grand experiment. When it was initiated a little over a decade ago, it truly was a first time experiment in the modern era of paper currencies. The history of how well it’s going to turn out remains to be written.

Another interesting point Krugman made was that our very tepid recovery in the USA, which has been monthly adding a small, inadequate number of jobs for the size of our population, is to some extent the result of a sharp reduction in government jobs across the country. State and local governments have seen their tax revenues sharply cut with the real estate meltdown and have responded by cutting their employment totals. Local governments don’t have the flexibility of the federal government which creates money by expanding its balance sheet. Local and state governments have to raise any shortfalls through taxes or by borrowing via bond issuance. Krugman’s point is that the totality of the government impact on the American employment has been one of austerity and that we don’t need more of this as we’re trying to re-inflate our economy.

Krugman is clearly brilliant, and made a fine argument against too much fiscal austerity for a recovery in Europe – or in theUnited States.