By Fareed Zakaria, CNN
Everyone is looking at Europe these days as economic and political protests mount across the continent.
The downward spiral has produced a great debate about the virtues of “austerity,” the idea that governments with large budget deficits must reduce these deficits -– mainly by cutting spending. If they don’t get their budgets in order, so the idea goes, they won’t be able to borrow money and will face a fiscal nightmare of ever-rising interest rates.
The problem is that as these governments cut spending in very depressed economies, it has caused growth to slow even further -– you see government workers who have been fired tend to buy fewer goods and services, for example -– and all this means falling tax receipts and thus even bigger deficits.
So, economists like Paul Krugman urge: abandon the austerity program, spend more and get budgets in order once the economy has recovered. The problem, in the mind of Keynesians like Krugman, is that European elites, particularly in Germany, have embraced the wrong economic doctrine.
Now, having been in Europe briefly earlier this week, I don’t think Europe’s elites -– especially German elites -– have really embraced some alternative view of economics. Most do understand that cutting spending during a recession slows down the economy further.