Paul Krugman and the New Austerity: Get Used to It

rcwhalen's picture


“American voters are being given a choice between a representative of the public sector and a representative of the financial sector, when they want less of what both groups are doing.”


John Dizard

Financial Times

July 22, 2012


London – Traveling in the EU in these days of economic crisis is a surreal experience.  The Summer Olympic Games in London are in full swing, with hundreds of private corporate sponsors seeking to achieve branding nirvana before the millions of people expected to watch the summer games between now and September.  Belying claims in many quarters that the economic world is about to end, the UK seems ready to achieve yet another triumph when it comes to sales and marketing.  


Politicians in the UK fret about austerity, but as in the US, the cost cutting is mostly falling on the public sector.  Non-financial corporations in the EU and the US are in relatively good shape, suggesting that growth in 2013 and beyond may be better than is commonly expected.  In the public sector in the UK and elsewhere, however, workers are facing a grim future as excessive salaries and headcount are being brought back into line with private industry and true need.   


A growing number of cities in the US seeking protection in bankruptcy, for example, and are doing so in order to reduce wages to something like parity with similar levels in the private sector.  When you recall that public sector workers in the US and EU alike make 2x the level of compensation paid to comparable workers in private industry, the task ahead to bring the global fiscal situation back into balance becomes clear.  


“Six of the 17 countries that use the euro currency are in recession,” CBS News reports ominously.  “The U.S. economy is struggling again. And the economic superstars of the developing world — China, India and Brazil — are in no position to come to the rescue. They're slowing, too.”  And this is all true, but our friends in the Big Media rarely point out that it is in the public sector in the US and other nations where most of the pain is being felt.  


In nations such as China, India and the EU where the state sector is predominant, the perceived economic pain is obviously worse – especially if you are a politician whose future livelihood is tied in some way to an endless increase in public spending and related economic activity.  The bailouts in the US and EU alike are not so much for the holders of bad debt as for the politicians whose careers will end as and when the debt defaults.   


Of course, nations like China and India still claim to be growing at rates that American politicians can only dream about – that is, if you believe the bogus economic statistics issued by these corrupt regimes.  In a world where political fortunes are tied to perceived economic vitality, statistics regarding rates of growth in employment and output should be suspect.  Yet for reasons that are all too obvious, institutional investors seem too willing to accept the self-serving economic nonsense as a good pretext for making asset allocation choices into nations that neither respect property rights nor international legal norms. 


In the US, luminaries such as Paul Krugman complain about an economic “depression” and suggest massive new public spending programs to address it.  Again, our esteemed Nobel laureate is correct, but somehow he fails to explain that most of the economic pain is being felt among the public sector constituencies that underpin the Democratic Party.  


Since the Great Depression and subsequent New Deal, the liberal tendency in American politics has embedded itself in the public sector.   The poor imitation of Euro-fascism created by FDR with the New Deal is all about creating mandates for bureaucracy and public sector workers and unions.  But the “New Austerity” so fearful to Krugman and his liberal comrades is really about ridding America, at least, of the terrible legacy of FDR’s love affair with European models of political economy.


When you hear about a city or county rolling back excessive wages or retirement benefits for public sector workers, remember that this is the bedrock foundation of American liberalism.  Or as I told my friend and diehard New Dealer Bill Janeway many years ago, being an American liberal is a coward’s route to socialism.  Needless to say, Bill has stopped speaking to me. 


As the US public sector is forced to realign its economic load from 25% of GDP down to something closer to the 18% actually covered by tax revenues, the political fortunes of American liberals will shrink accordingly.  With the shrinkage of the public sector, so too the political fortunes of the Democratic Party will also evaporate.


Krugman and his fellow Democrats are haunted by the ghost of Al Smith, the hapless Democratic presidential candidate who unsuccessfully sought the White House three times prior to the ascension of FDR and the New Deal.  And the saddest part of all is that it was Barack Obama, a supposed liberal Democrat from Illinois, who set in motion the end of the New Deal.  


By supporting a “temporary” holiday for employer contributions to the bankrupt Social Security “trusts funds,” Obama has started the unraveling of the financial fraud foisted upon Americans 80 years ago by FDR.  Indeed, you have to feel sorry for Krugman and his ilk.  Far from achieving a second “New Deal” under Barack Obama, American liberals have instead faced something that looks like the blessed era of Calvin Coolidge in the 1920s, when the Money Trusts controlled American politics.  


After winning the White House four years ago, the paragons of the “progressive” fascism we know as American liberalism have been forced to watch as the large banks have continued to call the shots.  Obama is no “progressive,” Krugman whines, but instead the errand boy of the big bank financial cartel that controls much of the US economy.  The truth about American liberals like Krugman is that they are really defenders of big banks and the corrupt corporate state. 


The latest Krugman rant in the New York Review of Books, “Getting Away with It,” is notable because it documents the control of the too-big-to-fail banks over the US political process.  In particular, Krugman and his sidekick Robin Wells nicely confirm our view that former Citigroup Chairman, Treasury Secretary and Goldman Sachs CEO Robert Rubin continues to call the political shots inside the White House.  


In a perhaps too revealing review of Noam Scheiber’s  new book, “The Escape Artists: How Obama’s Team Fumbled the Recovery,” Krugman and Wells note:


“Scheiber starts with the influence Wall Street exerted over the assembly of that economic team. In its early stages, Scheiber tells us, Obama’s campaign relied for policy advice on “obscure academics, contrarian gadflies, and past-their-prime bureaucrats,” like Austan Goolsbee, a young economics professor from the University of Chicago, and Paul Volcker, the octogenarian though still vigorous former chairman of the Federal Reserve. But by September 2008, another economic group had formed and begun competing for influence, composed of “well-heeled insiders. Most [of them] had worked for former Clinton Treasury secretary Robert Rubin.” Rubin had been a partner at Goldman Sachs before joining the Clinton administration; after leaving, he became a director and counselor, and then chairman, of Citigroup.”


The reason political creatures like Rubin and his colleagues at Goldman Sachs care about exercising control over the White House is that politics has always been the mother’s milk of the Boys of Broad Street.  Start to reduce the size and scope of government, both at the state and federal level, and the Goldman banksters will have to find a new game to play.  End the ability of all the TBTF banks to obtain bailouts in Washington and second-rate investment banking firms like Goldman Sachs may cease to exist altogether.   


Without a steady flow of bailouts and subsidies from Washington, all of the large New York banks are in serious trouble – but the smaller firms will die first.  At the end of the day, Goldman Sacks is a customer of JPMorgan Chase just as Bear, Stearns was once upon a time.  As the flow of largesse from Washington ebbs, look for JPMorgan to focus more and more attention on taking revenue and market share away from the Goldman bankers and other smaller firms.  


The difference between, say, Barclays or UBS, and Goldman and its larger cousin Morgan Stanley, is that these latter investment banks are not really banks.  They lack the secure deposit funding base and large balance sheet necessary to compete with the universal banks in the brave new work of Basel III.  We should look for Morgan Stanley to eventually spin off Smith Barney and then sell the rest of itself to the Japanese.  But like Lehman Brothers, who wants or needs to own Goldman Sachs?  


As Jamie Dimon looks to rebuild his reputation and income statement, just watch the bankers at JPMorgan go after what remains of the Goldman franchise.  Have you heard the joke about Goldman getting into “private banking?”   This seems to be yet another indication that the visibility on revenue and liquidity at Goldman Sachs is growing worse with each passing day.  And notice that Citigroup, which has recently been adding to its banking and trading staff, is right behind JPMorgan in terms of attacking the market share of Goldman and other relatively small non-bank financial firms.  


So when you hear Paul Krugman and his analogs in Europe complain about the lack of a response to the New Austerity, remember that their pain is mostly political.  Krugman worries that his fellow “progressives,” really fascists in sheep’s clothing, are most worried about their loss of political power rather than the economic standing of their fellow citizens.  When you hear Krugman and the other New Dealers at the New York Review of Books whining about the lack of federal spending, there is a simple answer:  “Get used to it.”


And as the flow of subsidies from Washington slowly ebbs, the TBTF banks will begin to feed upon one another to win the remaining private business on Wall Street.  Look for the largest universal banks such as JPMorgan and Citi to eventually win that contest, with Morgan Stanley likely getting sold and Goldman Sachs, like Bear and Lehman before them, being fed to the proverbial wolves.  


In the event, we can take some small comfort that most of the folks at Goldman Sachs are really no different that the Krugmanite socialists who populate the world of American economics.  They want something for nothing, this something stolen from the pockets of working Americans via the coercive power of the state.  The New Austerity, far from being a disaster, is really about restoring American values and ending the liberal political choke hold of Washington over all facets of American life.  Despite the very real pain that the coming adjustment entails, individuals who believe in personal and economic freedom should rejoice at the New Austerity.  

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Bugsquasher's picture

Krugman is scum.  I raised the question of the banks feeding on themselves a year ago..

macdec35's picture

Krugman is a bonehead who needs to have his lips sewn shut and never be  allowed to write or type.

He uses his Nobel as a way to spout tripe that gains him $$$ and would support any idea that was controversial enough to sell books or newspapers.

spooz's picture

Somehow I have a hard time thinking that a future with JP Morgan and Citi being the only remaining parasites amounts to "personal and economic freedom".  Am i missing something, Whalen, or are you preaching for an economy run by the biggest banksters?



sgt_doom's picture

Either Whalen was BSing us over the past few years, or the douchetard has truly gone off the deep end.

Instead of recognizing this for what it is, an ultra-leveraged bankster run, just like they did it in the 1920s, remarkably similar (and Whalen damn well understands the history of securitization, one of the few in America who does), with the securitization-credit derivatives-hedge funds-private equity LBOs-LIBOR scam, the foundation for said global racketeering fraud.

Forget Whalen......

shovelhead's picture

It's a pretty safe bet the 1% ain't making a thin dime from crawldaddy.

Except for JPM from his EBT card.

ebworthen's picture

And just when "austerity" should have come from the GOP they passed the bailouts.

Average citizen caught between the two heads of the political vise; privatized gains and socialized losses championed by both sides who claim they are not forged steel crushing the skulls of the citizenry.

When both parties are in the pockets of the Kleptoligarchy, talk of political solutions is pointless.

Both Progressives and Conservatives in power want self-enrichment and the oppression of "the little people".

Vociferous protestations that "they care" about the middle class, free markets, and the rule of law but their actions are the opposite.

Laws unenforced, individual rights swept under the rug, markets rigged, and rampant cronyism.

Until the facts change neither side has the right to utter a single word.

BeetleBailey's picture

well said eb.....well said indeed

Daily Bail's picture

Absolutely 100% correct, EB.

Both sides are lying.  Both sides are to blame.  Both sides are assholes, and both sides might just be the same.

sgt_doom's picture

And the connections go on forever:  When Eisenhower appointed Nelson Rockefeller to several positions within his administration, Rockefeller set about making radical changes to certain government agencies and organizations.

For example, the Ex-Im Bank, originally consisted of a four-person ruling panel --- Rockefeller changed it to one and only one director, making it easier to do the bidding of the multinationals, both directly and indirectly.

A recent example this past decade of indirectly doing their bidding:  when $8.7 billion in Iraqi reconstruction funds went missing, and not too long afterwards the former chief of the Ex-Im during that period covering Iraq, was Philip Merrill, who died in what had been ruled as a "suicide."

(His supposed "suicide" being that he blew off the back of his head with a shotgun while aboard his yacht in the Chesapeake Bay, then grabbed a 200-pound anchor and jumped overboard, swimming 12 miles from the yacht and then weighing down his corpse with said anchor.  Not too shabby for an overweight, elderly corpse, huh?

We aren't suggesting Mr. Merrill was directly involved, only that he had information which he might have imparted to a journalist in an upcoming scheduled interview.)

The others involved: one was a director with (Rockefeller/Morgan) JP Morgan Chase, which oversaw the contract between the movement of funds from the Iraqi Trade Bank, the Ex-Im and the Fed of NY, and another with the Coalition Provisional Authority, who went on to a position as CEO at Rockefeller Financial Services.

My oh my, how that Rockefeller name just keeps popping up and up over the decades.

Nothing to see here, move along please......

Daily Bail's picture

As usual, Whalen puts a lot into a short opinion piece.  Let's dissect it:

  • Goldman Sachs is a 2nd-rate investment bank that might not survive the next ten years...
  • Morgan Stanley will be split and sold to the highest bidder...
  • Krugman is a closeted, bank-loving socialist who whines about austerity because it hits his constituencies the hardest...
  • Krugman is a political animal who shifts his arguments depending upon the data..

A couple thoughts:

  • Just about all economists are political, so Krugman is no different.  
  • But he's much more dangerous to your children than most economists, because he thinks keeping his side in power for a few more election cycles is worth an additional $10 trillion in new debt. 

The real danger with Krugman is that so many idiots with no knowledge of finance, markets or budgets use KRUGMAN for their talking points.  They parrot his deficit spending bullshit ad nauseaum without thinking for themselves.  And they spread his nonsense far and wide - TV, radio, internet (message boards) and print.  So a run-of-the-mill academic Keynesian, who lucked his way into a substantially unrelated Nobel Prize almost 2 decades ago, has become so popular among this crowd that it's not unthinkable that his views on austerity/deficits will eventually take hold, and thus your children and grandchildren will be further fucked by trillions in additional U.S. federal debt.

Lastly, and this is more of a personal complaint - when the fuck did $1.5 TRILLION annual deficits become austerity?  I hear fools cry and whine about CUTS but all I see are massive deficits everywhere I look.

sgt_doom's picture

Hmmm....Krugman has consistently claimed to be a dem, but that Group of 30 ( guy always comes down on the side of the speculators and central banksters.

Just take a close look at his record....

shovelhead's picture


I'm going to make a fortune with my backhoe scooping up all those dead bodies from that draconian 1.5 trillion deficit spending.

Statists spend an inordinate amount of time dying in the streets.

It's a dirty world...Clean it up.

eatthebanksters's picture

Right on Chris Whalen, call it as it is!

crawldaddy's picture


here is what it is genius.  The super rich have 21 trillion stashed in tax havens,  but you keep thinking the firefighter making 60k a year is the problem.


Christ there is no hope for this nation if people like you are so easily mindfucked by the rich.

jag's picture

My Boston firefighters make closer to $100k all in. They spend most of their "runs" going to routine car accidents (I've seen both a pumper and ladder truck at, literally, a fenderbender with little damage to the vehicles and no ambulance in sight). 

The point is firefighting isn't what it was 30 years ago but staffing and management is the same. They cloak their "activity" in "runs" which are, per the above, mostly routine events, not fires. Fires are down 30% or more and of the remaining fires, they are much smaller and, with any place with smoke detectors, virtually no need of saving anyone. 

Policing is similar; 50 detectives for about 50 murders per year. Yep one case per detective per year. They don't solve the difficult cases much more frequently than in the past. 

Public workers? Public "works" workers were recently found not even bothering to show up and when they did, they did little and left early. Even after being caught they were later investigated and they were still not showing up or doing anything. 

I guess I must be "mindfucked" to think this is a vast waste of taxpayers money.

Totentänzerlied's picture

That's a hoot, still not getting it, maybe you should re-read the article, oh, 10 times, until you realize that the exact same bullshit economic and political ideologies that allow a handful of people to amass $21 trillion also allows firefighters to earn $100k ($60k? Are you fuckin joking?) - both of which are totally unsustainable. The superrich will bankrupt you in 5 years, the public unions will do it 10 years, and both will call you a selfish cheapskate when you finally tell their worthless parasitic asses to go pound dirt.

Cheyenne's picture

"bill has stopped speaking to me."

fuck him, whalen. his loss  

All Risk No Reward's picture

Krugman wants his bankster funded paycheck and to attend all the parties.

He's a shill for bankster widgets - you know, what the banksters sell as a "product."

What's a bankster widget?  Debt based money.

Would anyone expect a used car salesman to not a like any used cars on their lot?

Oh, and guess what?  Every corporate mandate in the country can be properly stated as "maximizing bankster widgets outside of the corporation in question."  Think about that for a moment - we all work to maximize bankster widgets and they don't even give us a cut.

The higher your paycheck, the better you are at saturating society with debt!

Ha ha ha, ho ho ho - we are such suckers.

A sovereign nation CAN NOT, BY DEFINITION, have debt money.

The borrowers are SERVANT to the lender.

The government is SERVANT to the lenders, which is why they are TBTF and we being driving into a hole controlled by the banksters.

Think Bain's prison - good luck climbing out...

sgt_doom's picture

Glad to see someone comprehends what's going on....

Marley's picture

"When you recall that public sector workers in the US and EU alike make 2x the level of compensation paid to comparable workers in private industry"

Source please.

divide_by_zero's picture

IIRC that was a BEA study and applied to Federal employess, state and local were still ahead but much less so. The Federal benefits and especially the defined benefit tyoe pensions were included and were 4x or so the private average and aeven 3x the state and local.

Totentänzerlied's picture

Try again, moron. Next time, without it being obviously bullshit. The EPI? Seriously? Are you even trying?

crawldaddy's picture

source, who cares what you recall and make up.

crawldaddy's picture

His source is his ass, I dont want that linked.  He simply pulls half ass lies out his ass.   He is just a fool slopping up the propaganda the 1% feed him.  You have to be full blown idiot to think the teacher making 50k year is the problem and not the CEO making 15k an HOUR.

eatthebanksters's picture

It's not the teacher making $50k a year (for 8 months work) that anyone is griping's the janitor makeing $85k or the unecessary bureaucrat making the fat 6 figure salary with ridiclous retirement benefits.  BTW, no one blames these folks, it on the pols for 'buying' their votes.  In the end, we just cant afford it and thus everyone is going to have to come back down to earth.

crawldaddy's picture

what janitor making 85K? Teachers jobs sucks so bad that the retention rate is among the worst in the job market, so save me the FOX news bullshit!! 

We cant afford what? teachers and firefighters making middle class wages?  WTF,  STOP WATCHING FOX NEWS.

Christ you people embarrass yourself. The problem is the CEO making 20k an HOUR YEAH A FUCKIN HOUR. Paulson a few years back made 8 BILLION DOLLARS IN ONE FUCKING YEAR.


The top 400 americans make more money than the bottom half 160,000,000 americans.

SO save the bullshit, the money is there, the .01% have it all.


the super rich have 21 TRILLION , yeah TRILLION stashed in tax havens.



Totentänzerlied's picture

So the unadorned populism finally reveals itself. Bravo. You would be embarrassed if you understood that your argument is a series of strawmen, but I'm not holding my breath for that revelation.

"SO save the bullshit, the money is there, the .01% have it all."

The US government could spend $21 trillion in the blink of an eye and the budget and debt figures and are there to prove it.

This isn't about one group of parasites outcompeting another group of parasites. Go whine about your beloved fairness elsewhere, the OWS controlled-opposition fools would love to have you.

The Big Ching-aso's picture



Great.  So the really TBTF become even really bigger?  I'm sure the best outcome will follow.

crawldaddy's picture

what the hell are you talking about?  obviously you have no clue.  Ponzi banks are a problem, that has nothing to do with public sector jobs, other than the banks holding hostage these public sectors pensions. BANKS,CORPS and the GOVT puppets are the problem

The Big Ching-aso's picture



It's sarcasm you douchewoggle.

crawldaddy's picture

wow, one of the most retarded articles I have ever seen on this site Its even more disheartening seeing how many here agree with such a disjointed, half ass, retarded article.  My god there is a whole section of "special" here it seems.

holmes's picture

God, I got goosebumps up my leg reading this.

Thanks, Chris.

Kantbelieveit's picture

Just how do you get the TBTF banks under control without "Socialism?"

disabledvet's picture

By "letting Goldman Sacks handle it.". Just like Europe. "Smartest men in the room." it's all good...

crawldaddy's picture

exactly, like austerity is working for greece and spain,  its pulling the world uder, and we have geniuses here in this country saying,

 ahhh ummm  u know what.. ahhh austerity is da answer, I r a genius... duhhhh



silverdragon's picture

Lets just fire 10% of all govt. workers, every year from every department. Add to that the budgets of all govt departments must shrink by 10% per year, every year.

The bankster criminals that feed on the criminals in the govt. will go hungry real quick.

crawldaddy's picture

please many do very important work, unlike idiots like you.

holmes's picture

What's your job jackass:

Party planner for the GSA or

Solar Panel Investments advisor for the Energy Dept.?

John117's picture

Being a Beltway Bandit for close to a decade, I can assure you that MOST do not.  I have worked in a couple of agencies around town and had opportunities to work on the Hill, at DHS, in the IC and now with a big M-I-C company.  

Trust me, we could easily trim 30-40% out of the Greater Washington Metropolitan Area employee base (i.e. The Beast) and the country would NEVER notice.  NOVA/DC/MD would be devastated, but pulling infected Band-Aids off always hurt.  The healing can't start until you do.

shovelhead's picture

But I NEED those Govt. pamphlets that tell me how to walk my dog for good health and to remind me to brush my teeth.

There's 10,000 good jobs for good wages right there.

Krugman's Magical Multiplier Effect. Double the pamphlet output and we have a balanced budget.

WallowaMountainMan's picture

'ending the liberal political choke hold of Washington over all facets of American life.'

crap. pure crap.

as if the label 'republican', 'democrat' 'conservative', 'liberal' makes a difference. the results have been the same. more for the rich, less for the rest. or do you actually think that those who write the laws and regulations and hand them to our 'representatives' to put into effect care whom they buy with their 'donations'? or that our 'representatives' actually know what they are signing into law? hell, they don't even read 90% of what they vote on.

or as you wrote:

'...because it documents the control of the too-big-to-fail banks over the US political process.'

the good news is i'm going for another hike into the real wilderness, where the air is fresh and the views are magnificent.


avidtango's picture

What's so depressing about your good post is that it portrays the massive change in our country.  We've gone from optimists to pessimists, from aspiring to "keeping up", from expecting better times to expecting an Apocalypse.  Add cynicism, conspiracy theorists and recession and now we turn on all institutions.

I'd hazard that 99% of folks who deal with local, small banks are satisfied since these firms did not deal in financial "tools" (what an apt word!), were conservative with loans and ran a tight ship.  The Big Boys, along with governments, created this new economy (quote unquote) consisting of sloshing debt from one bucket to another.

Have a nice hike

DosZap's picture

When you spend 48% of the Gov budget on regulation enforfcements,you know your in a world of shit.

crawldaddy's picture

what a load of shit, you dont get to be stupid and jst make up your facts like that. Stay stupid on your own time. 48%, my god man are you retarded?

Remington IV's picture

Paul Krugman

Al Gore



uhhhhhhhh , all worthy nobel prize winners !!!!!

viator's picture

Nobel Prize = liberal fascist

Clowns on Acid's picture

Good article RC, but the question is...when does the ECB and Fed begin printing again ?

Kantbelieveit's picture

Ah, yes, the Olympic hullaballoo means that austerity is working in the UK. Not. People who still bother with objective data, such as GDP, have drawn very different conclusions. Professor Krugman correctly predicted that austerity would crash the EU economies. No amount of libertarian foaming at the mouth can change the hard, cold, fact of the return of recession to the UK, thanks to an irrational austerity that has no basis in economic theory or observed reality.