Spain’s new government announced an 8.9 billion euro austerity package today, split between tax increases and spending cuts. It’s part of a larger austerity plan that would cut 16.5 billion euros by the end of 2012. And yet this is what the austerity measures of the past year provided…

It also said Spain’s 2011 deficit will be about 8% of its output – higher than the 6% seen by the previous government.

The Popular Party last month ousted the Socialists from power at elections amid deep economic gloom.

The government of new Prime Minister Mariano Rajoy has vowed to meet Spain’s target of reducing the public deficit to 4.4% of gross domestic product in 2012, no matter what.

The deficit reduction target, then, is the goal. This is in a country with 21% unemployment.

We know how this movie will end. “The boom, not the slump, is the right time for austerity at the Treasury,” John Maynard Keynes said in 1937, and the words are no less true today. The last few years in economic policy seem to be in one respect a consistent effort to deny Keynes, which happens to also deny reality. And the failures of austerity which can be seen around the globe, particularly in Europe, only serve to reinvigorate Keynes’ central theories. Cutting government when government can provide the only source of demand only hurts the economy further, and it often increases the deficit, defeating the initial purpose. [cont’d.]

In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom. In Washington, in particular, the failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can’t create jobs. But those of us who did the math realized, right from the beginning, that the Recovery and Reinvestment Act of 2009 (more than a third of which, by the way, took the relatively ineffective form of tax cuts) was much too small given the depth of the slump. And we also predicted the resulting political backlash.

So the real test of Keynesian economics hasn’t come from the half-hearted efforts of the U.S. federal government to boost the economy, which were largely offset by cuts at the state and local levels. It has, instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps, with real G.D.P. in both countries down by double digits.

Krugman takes us through the deeply held beliefs of such pro-austerity luminaries as the Republicans on the Joint Economic Committee (“Spend Less, Owe Less, Grow the Economy”), politicians in Ireland and Greece, European policymakers. They all happened to be wrong. Austerity is self-defeating in a time of economic stress.

Krugman concludes, “The bottom line is that 2011 was a year in which our political elite obsessed over short-term deficits that aren’t actually a problem and, in the process, made the real problem — a depressed economy and mass unemployment — worse.” It’s not too late to change course, but the people with the ability to create that shift are simply clueless about how to learn from reality.