Today's New York Times online has only three headlines in it's World Section. They are ' <http://www.nytimes.com/2011/12/05/world/europe/mario-monti-of-italy-calls-c abinet-to-consider-austerity-measures.html?nl=todaysheadlines&emc=tha22> Italy's Leader Unveils Radical Austerity Measures,' ' <http://www.nytimes.com/2011/12/05/world/europe/for-turkey-lure-of-european- union-is-fast-fading.html?nl=todaysheadlines&emc=tha22> For Turkey, Lure of Tie to Europe Is Fading,' and ' <http://www.nytimes.com/2011/12/05/business/in-europe-a-week-of-big-meetings -on-the-debt-crisis.html?nl=todaysheadlines&emc=tha22> Investors Anticipate Clearer Picture From Europe.' All of the stories which follow exemplify Krugman's analysis, below. 'Investors Anticipate' relates to a series of Euro emergency meetings, which begin this week. And what the heck; switching gears to 'running on empty,' I've tossed in his op-ed today; also a goodie. -Ed http://www.nytimes.com/2011/12/02/opinion/krugman-killing-the-euro.html?_r=1 <http://www.nytimes.com/2011/12/02/opinion/krugman-killing-the-euro.html?_r= 1&nl=todaysheadlines&emc=tha212> &nl=todaysheadlines&emc=tha212 Killing the Euro Paul Krugman NY Times Op-Ed: December 02, 2011 Can the euro be saved? Not long ago we were told that the worst possible outcome was a Greek default. Now a much wider disaster seems all too likely. True, market pressure lifted a bit on Wednesday after central banks made a splashy announcement about expanded credit lines (which will, in fact, make hardly any real difference). But even optimists now see Europe as headed for recession, while pessimists warn that the euro may become the epicenter of another global financial crisis.
How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you're very likely to find some pundit declaring that if America doesn't slash spending we'll end up like Greece. Greeeeeece! But the truth is nearly the opposite. Although Europe's leaders continue to insist that the problem is too much spending in debtor nations, the real problem is too little spending in Europe as a whole. And their efforts to fix matters by demanding ever harsher austerity have played a major role in making the situation worse. The story so far: In the years leading up to the 2008 crisis, Europe, like America, had a runaway banking system and a rapid buildup of debt. In Europe's case, however, much of the lending was across borders, as funds from Germany flowed into southern Europe. This lending was perceived as low risk. Hey, the recipients were all on the euro, so what could go wrong? For the most part, by the way, this lending went to the private sector, not to governments. Only Greece ran large budget deficits during the good years; Spain actually had a surplus on the eve of the crisis. Then the bubble burst. Private spending in the debtor nations fell sharply. And the question European leaders should have been asking was how to keep those spending cuts from causing a Europe-wide downturn. Instead, however, they responded to the inevitable, recession-driven rise in deficits by demanding that all governments - not just those of the debtor nations - slash spending and raise taxes. Warnings that this would deepen the slump were waved away. "The idea that austerity measures could trigger stagnation is incorrect," declared Jean-Claude Trichet, then the president of the European Central Bank. Why? Because "confidence-inspiring policies will foster and not hamper economic recovery." But the confidence fairy was a no-show. Wait, there's more. During the years of easy money, wages and prices in southern Europe rose substantially faster than in northern Europe. This divergence now needs to be reversed, either through falling prices in the south or through rising prices in the north. And it matters which: If southern Europe is forced to deflate its way to competitiveness, it will both pay a heavy price in employment and worsen its debt problems. The chances of success would be much greater if the gap were closed via rising prices in the north. But to close the gap through rising prices in the north, policy makers would have to accept temporarily higher inflation for the euro area as a whole. And they've made it clear that they won't. Last April, in fact, the European Central Bank began raising interest rates, even though it was obvious to most observers that underlying inflation was, if anything, too low. And it's probably no coincidence that April was also when the euro crisis entered its new, dire phase. Never mind Greece, whose economy is to Europe roughly as greater Miami is to the United States. At this point, markets have lost faith in the euro as a whole, driving up interest rates even for countries like Austria and Finland, hardly known for profligacy. And it's not hard to see why. The combination of austerity-for-all and a central bank morbidly obsessed with inflation makes it essentially impossible for indebted countries to escape from their debt trap and is, therefore, a recipe for widespread debt defaults, bank runs and general financial collapse. I hope, for our sake as well as theirs, that the Europeans will change course before it's too late. But, to be honest, I don't believe they will. In fact, what's much more likely is that we will follow them down the path to ruin. For in America, as in Europe, the economy is being dragged down by troubled debtors - in our case, mainly homeowners. And here, too, we desperately need expansionary fiscal and monetary policies to support the economy as these debtors struggle back to financial health. Yet, as in Europe, public discourse is dominated by deficit scolds and inflation obsessives. So the next time you hear someone claiming that if we don't slash spending we'll turn into Greece, your answer should be that if we do slash spending while the economy is still in a depression, we'll turn into Europe. In fact, we're well on our way. * * * http://www.nytimes.com/2011/12/05/opinion/send-in-the-clueless.html?nl=today sheadlines <http://www.nytimes.com/2011/12/05/opinion/send-in-the-clueless.html?nl=toda ysheadlines&emc=tha212> &emc=tha212 Send in the Clueless Paul Krugman NY Times: December 05, 2011 There are two crucial things you need to understand about the current state of American politics. First, given the still dire economic situation, 2012 should be a year of Republican triumph. Second, the G.O.P. may nonetheless snatch defeat from the jaws of victory - because Herman Cain was not an accident. Think about what it takes to be a viable Republican candidate today. You have to denounce Big Government and high taxes without alienating the older voters who were the key to G.O.P. victories last year - and who, even as they declare their hatred of government, will balk at any hint of cuts to Social Security and Medicare (death panels!). And you also have to denounce President Obama, who enacted a Republican-designed health reform and killed Osama bin Laden, as a radical socialist who is undermining American security. So what kind of politician can meet these basic G.O.P. requirements? There are only two ways to make the cut: to be totally cynical or to be totally clueless. Mitt Romney embodies the first option. He's not a stupid man; he knows perfectly well, to take a not incidental example, that the Obama health reform is identical in all important respects to the reform he himself introduced in Massachusetts - but that doesn't stop him from denouncing the Obama plan as a vast government takeover that is nothing like what he did. He presumably knows how to read a budget, which means that he must know that defense spending has continued to rise under the current administration, but this doesn't stop him from pledging to reverse Mr. Obama's "massive defense cuts." Mr. Romney's strategy, in short, is to pretend that he shares the ignorance and misconceptions of the Republican base. He isn't a stupid man - but he seems to play one on TV. Unfortunately from his point of view, however, his acting skills leave something to be desired, and his insincerity shines through. So the base still hungers for someone who really, truly believes what every candidate for the party's nomination must pretend to believe. Yet as I said, the only way to actually believe the modern G.O.P. catechism is to be completely clueless. And that's why the Republican primary has taken the form it has, in which a candidate nobody likes and nobody trusts has faced a series of clueless challengers, each of whom has briefly soared before imploding under the pressure of his or her own cluelessness. Think in particular of Rick Perry, a conservative true believer who seemingly had everything it took to clinch the nomination - until he opened his mouth. So will Newt Gingrich suffer the same fate? Not necessarily. Many observers seem surprised that Mr. Gingrich's, well, colorful personal history isn't causing him more problems, but they shouldn't be. If hypocrisy is the tribute vice pays to virtue, conservatives often seem inclined to accept that tribute, voting for candidates who publicly espouse conservative moral principles whatever their personal behavior. Did I mention that David Vitter is still in the Senate? And Mr. Gingrich has some advantages none of the previous challengers had. He is by no means the deep thinker he imagines himself to be, but he's a glib speaker, even when he has no idea what he's talking about. And my sense is that he's also very good at doublethink - that even when he knows what he's saying isn't true, he manages to believe it while he's saying it. So he may not implode like his predecessors. The larger point, however, is that whoever finally gets the Republican nomination will be a deeply flawed candidate. And these flaws won't be an accident, the result of bad luck regarding who chose to make a run this time around; the fact that the party is committed to demonstrably false beliefs means that only fakers or the befuddled can get through the selection process. Of course, given the terrible economic picture and the tendency of voters to blame whoever holds the White House for bad times, even a deeply flawed G.O.P. nominee might very well win the presidency. But then what? The Washington Post quotes an unnamed Republican adviser who compared what happened to Mr. Cain, when he suddenly found himself leading in the polls, to the proverbial tale of the dog who had better not catch that car he's chasing. "Something great and awful happened, the dog caught the car. And of course, dogs don't know how to drive cars. So he had no idea what to do with it." The same metaphor, it seems to me, might apply to the G.O.P. pursuit of the White House next year. If the dog actually catches the car - the actual job of running the U.S. government - it will have no idea what to do, because the realities of government in the 21st century bear no resemblance to the mythology all ambitious Republican politicians must pretend to believe. And what will happen then? 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