Quick repost on austerity, again, from the New York Times. Austerity has been a hot topic as papers cover the E.U. Summit, which started yesterday in Brussels. The summit will presumably finalize the terms of a deficit treaty and rescue fund for troubled European economies. While austerity seems to have lost little of its political shine (particularly in Germany), the effects of austerity policies are receiving more critical attention.

Krugman January 29:

Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth. “Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.”

Which is not to say that all is well with U.S. policy. True, the federal government has avoided all-out austerity. But state and local governments, which must run more or less balanced budgets, have slashed spending and employment as federal aid runs out — and this has been a major drag on the overall economy. Without those spending cuts, we might already have been on the road to self-sustaining growth; as it is, recovery still hangs in the balance.

The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist — or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” — could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.

Read: The Austerity Debacle. – NYTimes.com (1/29/02).

But as Andrew Rosenthal notes today, austerity continues to be the driving idea behind talks at the summit:

It’s fashionable in Republican circles to trash everything European (right-wing Tweeters even derided the idea that the Apple store in Paris is really nice). So I’ll be interested to see how the G.O.P. reacts to the latest EU summit, where politicians renewed their commitment to the right’s favorite false god: Austerity.

The 25 of 27 euro zone countries that agreed to sign a new financial pact will be legally prohibited from combating recessions with economic stimulus – which is merely the best way to combat recessions.

Read: At Euro Summit, Leaders Renew Commitment to Austerity – NYTimes.com (1/31/12).