What's with all the Austerity?

Paul Krugman has a new piece in the NYRB discussing austerity. His thesis is that austerity is appealing for two reasons. First, austerity appeals to those who see economics through a moral frame, for which belt-tightening is needed to offset the high-living that went on during the economic boom. Second, austerity serves the class interests of the creditors and the wealthy.

Its a good essay. But I don't think one can adequately discuss austerity politics in the United States without acknowledging the partisan nature of the conflict, and the way the "centrist" press creates narratives to sort out the conflict.

In 2008, Bush and Pelosi came to an agreement on a, mostly forgotten, $150 billion stimulus package. The negotiations were focused around what the stimulus should contain, rather than whether or not there should be one. Likewise, during the 2008 presidential primaries, Republican candidates ran on platforms that included fiscal stimulus. While Obama was constructing the ARRA, both the Republican House and Senate put together fiscal stimulus plans. It is fair to say that, at that point, their existed a bipartisan consensus in favor of fiscal stimulus.

Once the ARRA passed, with the support of only three Republicans, it became an obvious target for partisan attack. The financial collapse turned out to be far worse than initially understood, so administration predictions about the ARRA's impact on the labor market looked naive in retrospect.

Of course, Republicans were never really interested in austerity. They wanted to cut spending for its own sake. That's why, during the 2010 debt ceiling standoff, they refused to raise taxes under any circumstances. (During the presidential primary debates, every single Republican candidate said they would turn down a 10-to-1 spending-cut-to-tax-increase compromise). At the same time, Democrats in congress were opposed to the idea of cutting spending in the middle of a recession.

Out of this partisan conflict, a beltway consensus emerged. The beltway press couldn't just say "Republican partisans are highjacking the economy in a disingenuous attempt to advance their policy goals." Instead, the narrative became that the Republicans were right to worry about the deficit, but were too inflexible on taxes, while Democrats weren't serious enough about deficit reduction. The centrist dialectic yielded the austerity position we have come to know and hate: "everyone knows" the deficit should be tackled with a combination of tax increases and spending cuts. That reporters cited Rogoff and Reinhart to provide economic gravitas to their newly found conventional wisdom, makes complete sense.

I don't understand Europe as well, so I'm going to avoid commenting on the sources of austerity there. But I think the morality tales that Krugman is discussing are the product of a Washington D.C. press corp searching for a political narrative that placed both parties in the wrong.