Paul Krugman said governments that obsess over deficit reduction are breeding longer-term economic problems, reiterating long-held views against austerity.
His comments at an event in Oxford, England, come a week after U.K. Prime Minister David Cameron won a surprise election victory on a platform partly built on aggressive budget cuts.
“Governments that are obsessed with fiscal rectitude are going to be an even bigger problem,” the Nobel economics laureate said. “Drawing the wrong lessons from recent events could be a really bad problem in years ahead.”
Krugman has been a longtime vocal critic of austerity -- including Cameron’s cutbacks since he first came to power in 2010 -- and his views have been in the spotlight this month after the Conservative Party’s election win. That result has also led to criticism of Krugman’s position by Harvard historian Niall Ferguson.
Krugman said the biggest challenge facing the U.K. economy under Cameron will be “what appears to be the fact that the government believes its own propaganda, believes its own legend, believes that its political success validates the policies it has pursued.”
“They’ve basically been given a chance to make the same mistakes again and are likely to seize it,” he said.
On the economy, he said it’s proving “very difficult” to interpret, citing the labor market and “something very strange about the relationship between output and employment.”
“In many respects, the U.K. is giving off the signals of an economy that is still very depressed,” he said. “For some reason there really has been a catastrophic, really unprecedented, stall in productivity growth, which is more or less unique to Britain.”