Krugman is up in arms over the faux austerians: All along they’ve been worrying about the budget deficits in Europe, but when France goes and raises taxes on rich people, they complain about that too! The nerve of these people.
Yet as usual, Krugman doesn’t know when to keep his mouth shut. In his zeal to attack the people bashing the French authorities, Krugman slips and says:
Again, the point is not that France is problem-free; the question is why this only moderately troubled nation attracts rating downgrades and so much apocalyptic rhetoric.
And the answer just has to be politics. France’s sin isn’t excessive debt, especially poor growth, lousy productivity (it has more or less matched Germany since 2000), poor job growth (ditto), or anything like that. Its sin is that of balancing its budget by raising taxes instead of slashing benefits. There’s no evidence that this is a disastrous policy — and in fact bond markets don’t seem concerned — but who needs evidence? [Bold added.]
And here I thought balancing the budget in the midst of a liquidity trap was a really really bad idea.
(For those keeping score: Krugman is the one relying on a crude notion of “aggregate demand” causing the recession, where tax cuts and government spending are both examples of “stimulus” albeit with varying degrees of effectiveness because of different “multipliers.” In contrast, right-wingers have always stressed supply-side effects, and said that the best way to grow out of a budget hole is to slash government spending, rather than raising marginal tax rates. For example, see my EconLib piece on all of this from January, and especially follow the link to the June 2010 ECB bulletin (start reading at page 83), giving historical examples of “expansionary austerity” and stressing the importance of reducing budget deficits via spending cuts, not tax hikes. I guess Krugman gets his ideas of austerians from guys in a bar or something? He obviously isn’t reading their actual positions.)