The British economist/historian Niall Ferguson, who has become an inflation town crier and imperial pessimist, has a Daily Beast column out pushing back against Krugmanite critiques of European austerity budgets.
Members of the Deficits Forever club are intellectually lazy when they assert that the U.K. economy is growing slowly because austerity doesn't work, implying that things would be better had the spending binge continued. Maybe. But maybe not. A responsible politician wouldn't take the gamble because the costs of being wrong are too high. Just ask the Greeks.
The real lessons for the United States are clear. Those who run up debt in good times can borrow only so much more when a recession strikes. And heavily indebted governments postpone fiscal stabilization at their peril. If you wait to reform until the bond market calls time, you are—to use a technical term from economics—screwed.
The best option is, of course, to be Switzerland, a country strangely ignored by Krugman. The Swiss have run a prudent fiscal policy throughout the economic crisis. They have had a structural surplus in each of the past five years. Their net debt is actually lower today than it was in 2005. And guess what? In 2009 their economy suffered the smallest contraction in Europe, with unemployment today below 4 percent. As for sound money, the Swiss franc is up 95 percent against the dollar since 2000.