May 18, 2012 12:26PM

All Europe Needs Is a Massive Earthquake and Tsunami

Paul Krugman looks at the first‐​quarter growth results from some developed economies and notes Japan’s strong performance due to the post earthquake and tsunami reconstruction. He then compares it to Italy’s dismal results due to austerity measures (which, as I’ve pointed out here, consists almost exclusively of tax increases, not cuts in spending).

Krugman then says that “there seems to be some kind of lesson here about macroeconomics, but I can’t quite put my finger on it…” Is he really saying that what Europe needs to grow again is a massive earthquake and tsunami? Or maybe a nuclear accident? After all, Krugman once wrote that Fukushima’s “nuclear catastrophe could end up being expansionary” for the economy.

Speaking of economic lessons, has the good professor never heard of “the broken window fallacy”?