A good clip from the BBC's Newsnight program last week. The basic conservative arguments used in favor of austerity here are being used more so in Britain, to not surprisingly disastrous results.

Jeremy Paxman is joined by Nobel Prize winning economist Paul Krugman, venture capitalist Jon Moulton and Conservative MP Andrea Leadsom to discuss whether austerity is always the best method for resolving a country's national debt problem.

Moulton brought up the Estonian 'miracle' at the very end, which was dismissed by Krugman. The Estonian President Toomas Ilves has since gone on a twitter war against Krugman for his comments.

Here's a taste of what was said.

Jon Moulton: You know, I struggle to attack an Nobel Prize winner, but I think you’re really, seriously wrong. The issue about austerity here is really we have too large a state. We’ve let the economy go from thirty-odd percent to pushing fifty percent public sector. If you want growth you need a larger private sector, not a larger public sector. You’re also ignoring, as your book does, I’ve just been reading it when, while waiting to come on, the very simple moral dimension of what you’re recommending, which is that we run up more debt. The only thing that that does enables us to live better today at the expense of those who follow us. That’s quite a serious moral argument, and you cannot ignore it.

Krugman: I actually would put the moral argument very differently. And I look, I certainly look at the US and it’s true here as well, if I think about the future generation, I think that the crime we are committing against the next generation is not that we’re going to leave them with more debt, that’s a venial sin, the crime is that all of these students are graduating from college with no job prospects, are graduating from college with debts that they have incurred to get an expensive education and then there are no jobs – that damage that we are inflicting, the damage we are inflicting on the next generation by not having jobs for them, (Andrea interrupting: Yeah, but that’s...) which is the result of misguided austerity right now, (Jon interrupting sounds) that is the great sin…

Jon Moulton: Those jobs will be generated when people move from the public sector to the private sector.

Andrea Leadsom: Yeah, yeah. What we need to be doing is really making it easier for young people to start their own businesses. Making it far, far easier for new entrepreneurs. When you say we have to give them jobs, create jobs, we shouldn’t be about creating jobs, we should be about enabling the economy to create jobs by low tax regime, opportunities for people to start up new businesses, and so on, not by creating jobs.

Krugman: But how many--you know, the average young person is not going to start a business, there has to be (Andrea interrupting: But why not?) an expanding economy which is not happening, and is not happening because we’re not providing the neccessary support, and by the way, I think you [Andrea Leadsom], you’ve just given me confirmation of something that people like me tend to say which is that actually none of this is at all about fiscal responsibility, it’s all about exploiting the current situation to pursue an ideological goal of a smaller state, and, you know, we can argue about whether the British state is too large, but look at Sweden, which is actually weathering this very well with a much larger state than you have, so that, that’s a great diversion, that’s suggesting that you’re not actually sincere, it’s not really the budget deficit that’s the concern, you’re looking for a way to exploit this debt, deficit situation…(both Joe and Andrea interrupting, garbled)

Jon Moulton: You’re wrong and you accuse us of lying.

Krugman: No, I think that it’s probably just that you are, you’re mingling together concepts that are really quite separate.