Paul Krugman is rightly incensed at the current prevailing feeling of global financial austerity. As a scholar of the Great Depression, he knows full well the dangers of suddenly becoming a deficit hawk and tightening the money supply in fear of inflation, as evidenced by the Recession of 1937-38.
I have found that many view austerity measures as an analogy of personal financial responsibility. When an individual person is in dire financial straits, what should she do? A) Continue spending to increase her standard of living or B) save money and pay down debts? The obvious answer taught in every consumer ed class in history is Option B.
Yet, Option B is not at all accurate when considering global finance! We view nation-states often as simply very large metaphorical persons, but this is not the case at all. The financial situation of a nation-state is vastly more complicated than and totally different from the situation of the individual consumer. What is responsible for a country (deficit spending during a financial crisis) is often the opposite of what is responsible for an individual. In this case, the doubled pain of rising interest rates and stagnant government spending will be among the most irresponsible decisions made by world governments this side of climate change.