Paul Krugman: The Bleeding Cure

Doctors used to believe that by draining a patient’s blood they could purge the evil “humors” that were thought to cause disease. In reality, of course, all their bloodletting did was make the patient weaker, and more likely to succumb.

Fortunately, physicians no longer believe that bleeding the sick will make them healthy. Unfortunately, many of the makers of economic policy still do. And economic bloodletting isn’t just inflicting vast pain; it’s starting to undermine our long-run growth prospects.

Some background: For the past year and a half, policy discourse in both Europe and the United States has been dominated by calls for fiscal austerity. By slashing spending and reducing deficits, we were told, nations could restore confidence and drive economic revival.