Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.
That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.
And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback... British growth has stalled, and the government has marked up its deficit projections as a result.
A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.
In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems.
As context for Krugman's concerns, Ryan Avant at The Economist makes the danger of further "belt-tightening" for the US clear in the light of persistent weak growth:
(W)e learn that in Februrary orders for durable goods unexpectedly declined. Some measures of consumer confidence have been slipping. And Macroeconomic Advisers has dropped their tracking estimate again, to 2.3%. I certainly don't feel as positive about the economy as I did back in early February, when all the data points were surprising to the upside.
Commodity prices were already rising early in the year, in a manner that was likely to check growth somewhat. When Middle Eastern unrest increased and oil prices moved higher still, it was clear that this would have a negative impact... (But) growth has been slower than it otherwise would have been thanks to tighter than necessary fiscal and monetary policy. So sure, don't expect miracles. But also, don't be surprised when policy mistakes combine with unexpected shocks to leave the economy substantially short of potential output and full employment.
Avant suggests the timidity of policy makers is already a drag on economic recovery. Far worse, the congressional GOP's "austerity as the path to economic growth" proposals to further cut spending are fueled by magical thinking. But it's magical thinking in service of an agenda that builds on thirty years of cynical anti-government ideology. Far from being opponents of deficits, they have deliberately created deficits as a weapon of fiscal destruction against their own government. Otherwise, how to explain the degree to which these proponents of "Tax Cuts Uber Alles" are oblivious to real-world failure of their theories and immune to counter-argument or political compromise?