The PIIGS remind me of the patient whose doctor orders him to lose weight by eating less. The patient responds by doubling his calorie intake. He later cuts back by ten percent and wonders why he is not losing weight. The PIIGS went on a spending binge from which they do not want to retreat. They then blame their problems on austerity and the lack of charity of others.
There is another message in these figures: the insolvent PIIGS cannot finance their deficits on their own in credit markets. They can keep on spending only with loans from international organizations and European Central Bank. That PIIGS have continued to spend unabated means that their “miserly” neighbors have continued to bail them out, largely out of public sight.
So much for the scourge of austerity in Southern Europe. The facts show it simply does not exist.
Well, never mind. The Keynesians have new reason to cheer. Japan, under the new government of Shinzo Abe, has embarked on a program of monetary and fiscal stimulus, and, lo and behold, the stagnant Japanese economy actually recorded a whole quarter of decent growth. At last Japan has seen the light. (The latest Economist cover features a superman Abe flying to Japan’s rescue). Stimulus cheerleader, New York Times columnist Paul Krugman (Japan the Model), answers his own question “how is Abenomics working?” with: “The safe answer is that it’s too soon to tell. But the early signs are good…”
Krugman’s memory must be incredibly short if he thinks that Japan has just discovered stimulus.