I think Paul Krugman is being coy this morning. He talks about various technocratic institutions—European Commission, Bank for International Settlements, OECD—that have pushed policies that go entirely against standard economic models. These are theories like, “Cutting government spending won’t cause the economy to contract but rather made businesses confident and cause a burst of investment!” Ideas like this go exactly against what we know about economics. As Krugman puts it, “I guess we should just call these people crats, since the techno got thrown out the window and replaced by intuition, or something.”
But this is not what’s going on. All the ideas of “expansionary austerity” are nothing more than covers. They are presented as a way to justify policies that those pushing them want for different reasons. And it is clear what those different reasons are. These people do not like the welfare state. They are the rich and they are looking out for the interests of the rich.
This is very much like Matt Yglesias’ great example of Quaker budget hawks. If the government went on to balance the budget without cutting the military and the Quakers complained that wasn’t acceptable, then we would all agree that they didn’t care about the budget, just about cutting defense spending. But somehow when almost all budget hawks turn out to only be interested in cutting spending on the poor, they aren’t publicly shamed for their obvious disingenuousness.
We saw this quite explicitly last week when Olli Rehn complained that France wasn’t balancing its budget the right way. You see, France has been raising taxes. Now, normally people would think that was fine. If a person is in debt, he can either cut his spending or make more money, say, with a second job. It really doesn’t matter. With governments, the argument for taxes over spending cuts is even stronger—especially in a depressed economy. Cuts to spending cut that exact amount out of the economy. Raising taxes take most but not all of that money out of the economy. (For the record: both are bad ideas in a depressed economy.)
Krugman knows all this, of course. He was one of the people who called out Rehn for his nonsense. But it may be a bridge too far for him to claim that all of these institutions are disingenuous. But I don’t see how else you explain it. I’m sure that most of the top people at these places have convinced themselves that what is best for themselves and their rich friends conveniently is best for everyone. But just because they have come to believe their own lies doesn’t mean we should let them off the hook.