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In Europe, a Failing Orthodoxy Goes Unchallenged

Paul Krugman: The Netherlands has the kind of Grand Bargain that The Washington Post editorial page dreams of.

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The economist and blogger Simon Wren-Lewis recently wrote about the rise of extremist parties in Britain and the Netherlands. As he noted, in a way this shouldn’t be surprising. The Netherlands in particular has the kind of Grand Bargain that The Washington Post editorial page dreams of — a government of national unity committed to fiscal austerity.

It’s as if Senator Harry Reid, House Speaker John Boehner and President Obama had all agreed to implement the Simpson-Bowles budget plan in the United States, with some extra front-loaded cuts thrown into the bargain too. And here’s the thing: it’s not working. So what you have is a frustrated populace finding no “respectable” politicians willing to challenge a failing orthodoxy.

“So in the Netherlands and elsewhere in Europe,” Mr. Wren-Lewis wrote, “on the issue of the stupidity of pro-cyclical fiscal policy, it is only the views of politicians on the far left or far right that match those of the majority of macroeconomists. Given the social, economic and political consequences of declining real wages and rising unemployment, which fiscal austerity only makes worse, this is both a very sad and rather dangerous state of affairs.”

Indeed, the last time we saw something like this was in the 1930s, when all the great and good united in defense of the gold standard; that did not end well.

Also, Mr. Wren-Lewis alluded to the extraordinary limpness of Britain’s Labour Party, which has been consistently, depressingly unwilling to challenge the basic premises of Prime Minister David Cameron and the chancellor of the exchequer, George Osborne.

But my thoughts ran down a different channel. Governance in the Netherlands since the financial crisis struck has been everything the world’s Very Serious People could want: the whole political center committed to Doing The Right Thing, and in fact doing it very vigorously. Meanwhile, just to the south lies another country with famously dysfunctional politics — so bitterly divided that it’s as if its politicians are speaking different languages, because, well, they are.

So how does performance in recent years compare?

Glad you asked:

• Public debt, percentage of gross domestic product (end 2011):

Belgium: 97.8

Netherlands: 65.0

• Change in structural balance, 2007-2013:

Belgium: -1.6

Netherlands: -0.1

• Change in unemployment rate, 2007-2013:

Belgium: +0.5 percent

Netherlands: +2.7 percent

• Long-term interest rates, July 2013:

Belgium: 2.54 percent

Netherlands: 2.03 percent

Yes, Belgium is paying slightly higher interest rates — but not by a whole lot since the European Central Bank started doing its job as lender of last resort. And in general, it’s hard to escape the impression that Belgium has been better served by its political paralysis than the Netherlands has by its unified, effective determination to do exactly the wrong thing.

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