Paul Krugman's blog has been an essential source of smart analysis on the Greek economy as the tension increases with German leaders and the European Union.
"It’s now clear, or should be clear, that the Greek program was doomed to failure without major debt relief; no matter how hard the Greeks tried, austerity would shrink GDP faster than it reduced debt relative to the baseline," he writes.
But a new post also ties what's happening in Greece -- what he's dubbed the Eurodebacle --- back to America, and debunks all the GOP talking points in the process.
(T)here’s a broader lesson from Greece that is relevant to all of us — and it’s not the usual one about mending our free-spending ways lest we become Greece, Greece I tell you. What we learn, instead, is that fiscal austerity plus hard money is a deeply toxic mix. The fiscal austerity depresses the economy, and pushes it toward deflation; if it’s accompanied by hard money (in Greece’s case the euro, but a fixed exchange rate, a gold standard, or any kind of obsessive fear of inflation would do the trick), the result is not just a depression and deflation, but quite likely a failure even to reduce the debt ratio.
So, how does this play into U.S. policy debates? Well, Republicans love to warn that America might turn into Greece any day now. But look at the policy mix that is now de facto GOP orthodoxy: sharp cuts in government spending (maybe offset by tax cuts for the rich, but these won’t provide much stimulus), combined with a monetary policy obsessed with fears of dollar “debasement”. That is, the conservative side of the US political spectrum, while holding up Greece as a cautionary tale, is actually demanding that we emulate the policy mix that turned Greek debt into a complete disaster.
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