CNN.com (2/26/13) had an odd piece of analysis of the Italian election results from Barbie Latza Nadeau, Newsweek's Rome bureau chief:
Italy has actually used up many of its final chances in this electoral season…. The country [has] chosen not to embrace continuing austerity under technocratic leader Mario Monti, which is necessary by any calculation to actually start moving Italy out of the recession.
Really? That's not the calculation of Paul Krugman (New York Times, 2/25/13), who for what its worth is a Nobel Prize-winning economist:
Mr. Monti was, in effect, the proconsul installed by Germany to enforce fiscal austerity on an already ailing economy; willingness to pursue austerity without limit is what defines respectability in European policy circles. This would be fine if austerity policies actually worked–but they don't….
When Europe began its infatuation with austerity, top officials dismissed concerns that slashing spending and raising taxes in depressed economies might deepen their depressions. On the contrary, they insisted, such policies would actually boost economies by inspiring confidence.
But the confidence fairy was a no-show. Nations imposing harsh austerity suffered deep economic downturns; the harsher the austerity, the deeper the downturn. Indeed, this relationship has been so strong that the International Monetary Fund, in a striking mea culpa, admitted that it had underestimated the damage austerity would inflict.
Meanwhile, austerity hasn't even achieved the minimal goal of reducing debt burdens. Instead, countries pursuing harsh austerity have seen the ratio of debt to G.D.P. rise, because the shrinkage in their economies has outpaced any reduction in the rate of borrowing. And because austerity policies haven't been offset by expansionary policies elsewhere, the European economy as a whole–which never had much of a recovery from the slump of 2008-09–is back in recession, with unemployment marching ever higher.
Krugman is hardly the only economist who calculates that austerity hurts Italy's efforts to recover from the recession rather than aiding it. Here's Dean Baker's headline from 2011 (9/21/11), shortly before Monti took office: "Tax Increases and Spending Cuts in Italy Will Slow Growth, Not Speed It Up." Sure enough, Italy's GDP growth was 1.8 percent in 2010, 0.4 percent in 2011 and -2.3 percent in 2012.
But despite all evidence, most corporate media pundits remain convinced that not only is austerity the best policy–it's the only possible policy. As Krugman writes: "Far from seeming either mature or realistic, the advocates of austerity are sounding increasingly petulant and delusional."
Thanks to Sean Cox of Fordham University for pointing this quote out to me.