It's Long Past Time for Krugman to Name and Shame NYT's Eurozone Reportage

The obvious response is "why?" As we still occasionally try to make clear to students and our children, "can" refers to capability while "may" refers to permission. Let's take a real case -- the eurozone. I'll start with a hypothetical based on that real case. What if Russia threatened to invade Italy? Defending itself would require "major investments" not simply in arms, but infrastructure, and training far more of its citizens to function effectively as soldiers. Under Lagarde's "logic" Italy "can't undertake major " investments" because it has "high" debts. So, is Italy's only choice to surrender and invite the Red Army to occupy Italy? The question of whether Italy "may" spend the funds necessary to defend itself depends on what budget rules German insists that the EU adopt.

Nations, including the U.S., have run far higher debt-to-GDP ratios than the EU periphery has now during World War II. It did not lead to hyper-inflation or "crippling" debt. Japan, today, in peacetime, has a dramatically higher debt-to-GDP ratio than the EU periphery -- and is able to borrow money at a pittance and make very large infrastructure improvements. Indeed, Japan's struggle has been with deflation.

The real question is this: would spending money to develop the EU's seriously inadequate infrastructure in response to the Great Recession be a desirable policy? For all the reasons even the IMF admits, the answer is yes. Doing so would greatly improve growth, put people to work who want to do so, greatly reduce the "brain drain" of emigration of new university graduates, make the EU more competitive, and improve the quality of life. As nations grow the automatic stabilizers work to reduce government deficits (expenditures on the poor and unemployed fall while tax revenues increase). Those supposedly "unsustainable" U.S. deficits of World War II soon turned into modest deficits that aided growth without causing harmful inflation. The U.S. began its massive infrastructure improvements (the interstate highway system) while we were (not) "suffering" from the (non) "crippling" debt "burdens" of World War II.

The real restraint (the "can" concept) is resources in the real sector, not money. Every nation understands that truth when it is at war. No one surrendered to the Germans in World War II because they would have to take on debt or issue more money in order to fight for survival. The massive unemployment in the periphery proves that there are enormous amounts of unused real sector resources.

In human terms, that also means that over 10 million Europeans who want to work are denied that opportunity by Merkel's mantra of TINA. The "may" question is one of getting permission from Merkel to employ these peoples of the periphery. Because they made the grave error of surrendering their sovereign currencies the peoples of the periphery have the capacity to produce full employment but are denied the permission to do so by Berlin.

Conclusion

As Berlin throws over 100 million citizens of Spain, Greece, and Italy to the wolves -- and alternates between ignoring and mocking their suffering -- it brings closer the day when scores of millions of Europeans will revolt against their foreign rulers and the economic malpractice they insist on inflicting. Merkel's minions demean the peoples of the periphery on a daily basis. The Washington Consensus had its colonial arrogance, but it was not accompanied by constant insults about the character of the peoples of Latin America. The Brussels Consensus is defined by its withering contempt for the periphery.

I have suggested in the past that the NYT have its reporters that cover the eurozone meet Krugman for lunch and talk about economics. I have offered UMKC economics faculty to conduct an economics boot camp for the reporters. It would do them enormous good if they spent a week in the heartland. Of course, nothing came of either suggestion. I now ask Krugman to use his column to name and shame the NYT reporters that spread this economic malpractice that has caused so much human misery without an iota of critical thinking. They simply treat Merkel's mantra of TINA as gospel. I'd love it if the reporters ceased implicitly assuming the that TINA was revealed truth and instead presented their best substantive arguments about why austerity and slashing workers' wages are the eurozone's optimal strategy for responding to the Great Recession.