Krugman also tries to debunk claims that the European welfare state bears any blame for the European financial crisis; in the process, he makes several significant blunders in his analysis.
Common Currency “Cheered On” by “American Right-Wingers”
Krugman begins by laying blame at the creation of a common European currency, about which he says, “It was cheered on by American right-wingers.”
Conservative economist and Nobel Laureate Robert Mundell and his followers did support the euro, based on the Gold Standard argument mentioned by Krugman, but other even more influential economists opposed it. Robert Mundell himself writes: “ . . . there is considerable academic opposition to the idea of monetary union. It comes not just from Keynesians but from monetarists such as Milton Friedman, Henry Kaufman and Martin Feldstein, and even—surprise—a supply-sider, Arthur Laffer.”
Krugman’s simplistic claim that “American right-wingers” cheered it on is clearly the statist’s effort to paint his opposition in false light. With the important conservative economist, Milton Friedman, along with Kaufman, Feldstein, and Laffer, squarely opposed to the euro, Krugman is being less than forthright in his claim that conservatives “cheered it on.”
According to Krugman, Austerity Never Works
Krugman continues his inaccurate reporting when he claims, “So now that the euro project is on the rocks, what lessons should we draw? I’ve been hearing two claims, both false: that Europe’s woes reflect the failure of welfare states in general, and that Europe’s crisis makes the case for immediate fiscal austerity in the United States.”
Krugman then uses Sweden as an example of the mighty welfare state that has, nevertheless, survived the crisis. But as Nile Gardiner points out, “Krugman cites Sweden as an example of a social welfare success in Europe”; however, Krugman omits that fact that “in recent years, Sweden has begun rolling back the welfare system and government expenditure while adopting important free market reforms.” This fact demonstrates that a welfare state is unsustainable, so much so that even Sweden has begun to restructure away from its former statist position.
Is Sweden Really a Socialist State?
While Krugman points to Sweden’s socialist path as a “star performer,” a question arises, “Is Sweden really a socialist state?” According to Swedish parliament member, Johnny Munkhammar, “The simple truth is that Sweden is not socialist.” He explains further, “It's true that Sweden wasn't always so free. But Sweden's socialism lasted only for a couple of decades, roughly during the 1970s and 1980s. And as it happens, these decades mark the only break in the modern Swedish success story.”
Contradicting Krugman’s socialist “star performer” status for Sweden, Mr. Munkhammar explains that Swedes voted against the leftists even as they were hurting from the financial down-turn. Under a right-of-center government, state-owned businesses have been sold to the private sector, and the number of public authorities has shrunk. The government in Stockholm has cut property taxes, eliminated the wealth tax, and even put in place a new system allowing citizens to keep more of what they earn. Munkhammar writes, “Today, the state's total tax take comes to 45% of GDP, from 56% ten years ago.”
So when Krugman holds Sweden to be the shining example, he is essentially exemplifying a country that has turned from its path of statism to lower-taxes, less government spending, and free market principles—the very opposite from what Krugman is touting.
The Eurozone
Krugman then returns to the issue of the Eurozone, claiming, “What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency.” Sweden, of course, did not join the Eurozone but kept its own currency, which both Krugman and Gardiner acknowledge. But Krugman places the blame for Europe’s crises only on the common currency issue and not on the burgeoning, unsustainable welfare states.
Krugman, writing for the pleasure of his statist sycophants, insists on upholding the statists’ pet project of making every country a welfare state. He does not favor governmental belt-tightening; he pursues a bloated government that continues to raise taxes and spend, even though these tactics tend to drive down private sector expansion and shrink the over-all economic growth of a nation. Sweden is a shining example, but not as Krugman would have readers believe.
Sources:
- Paul Krugman, “Legends of the Fail,” November 10, 2011, New York Times.
- Robert Mundell, "The Case for the Euro--1," March 24, 1998, The Wall Street Journal Interactive Edition.
- Nile Gardiner, “Paul Krugman is rewriting history,” November 28, 2011, The Telegraph.
- Johnny Munkhammar, “ The Swedish Model,” January 26, 2011, The Wall Street Journal.
Linda Sue Grimes - As a writer, researcher, and SRF devotee, Linda Sue Grimes has studied poetry and practiced Kriya Yoga for over thirty years..
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