Very Ernstig PeopleThe FT reports on the lonely life of an austerity skeptic:
Mr Teulings’ CPB let loose with a report in March accusing Dutch politicians of ignoring a consensus among macroeconomists that cutting deficits does much more economic damage than usual during so-called “balance-sheet recessions”, like the current one. Such contractions are driven by consumers and firms trying to pay down heavy debt loads, leaving government as the only actor in the economy still able to spend.
The Dutch government’s inability to acknowledge the damage done by austerity despite mounting evidence is a case of “cognitive dissonance”, Mr Teulings told the Financial Times. He said persisting with the proposed new deficit cuts, on top of planned austerity measures amounting to 8 per cent of GDP over seven years, would hurt consumer confidence.
“There’s different evidence that all fits [the argument] that the costs of austerity are currently higher, because there’s rising unemployment, there’s a financial crisis and we are close to the zero lower bound [on interest rates],” Mr Teulings said. He referred to recent papers by the IMF’s Olivier Blanchard and to work by Larry Summers, Paul de Grauwe and others that has rekindled the debate over the wisdom of austerity across the EU.
Mr Teulings is not the only economist in the Netherlands sceptical of austerity, but he has been the only one with any policy influence. Prominent austerity sceptics at universities and big banks say they have been shut out, not just from government policy-making bodies but from the counsels of political parties on both right and left.
“It’s not only the current government, basically all the sensible political parties have embraced austerity,” said Bas Jacobs, a professor at Erasmus University and austerity-sceptic. That includes the centre-right Liberals and the centre-left Labour party, who form the coalition government, as well as most mainstream opposition parties.
Despite writing about all this stuff for years, I’m still amazed not just by the way policy makers threw basic macroeconomics out the window, but by the absolute unanimity of the turn to austerity. After all, the critics weren’t exactly invisible or inaudible; how could everyone serious be so sure that prominent macroeconomists were all wrong, and bureaucrats with no predictive track record were right?
krugman
