Tuesday, December 2, 2008

Paul Krugman debunks deficit myths



Krugman is a big name in economics and his debunking of the deficit myth is helpful.

"...the deficit worriers have it all wrong. Under current conditions, there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects."

"The idea that tight fiscal policy when the economy is depressed actually reduces private investment isn’t just a hypothetical argument: it’s exactly what happened in two important episodes in history.

The first took place in 1937, when Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.

The second episode took place 60 years later, in Japan. In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. And again the recession that followed led to a steep fall in private investment."

Read the article here.

3 comments:

Billy said...

Paul Krugman gets it - Amazing

Billy

Mike Norman said...

Billy,

He doesn't get it point for point (there's still some paradigm confusion in there), but it's close enough. And he's a big enough name to bring credibiity to the deficits are bad myth.

googleheim said...

Krugman in his columns warned of ever higher oil prices which would not go down any time soon if not ever, in late summer 2008.

He did not ( perhaps ) even place the caviat that he could be wrong.

Either he did this to press his penchant for Obama's change, or he did not understand like Schiff that the USA controls the world through consumption.

We stop, they stop harder.

It's not a B.R.I.C. house afterall.

Brazil Russia India China will now need to learn how to cool off those attitudes.