Monday, March 12, 2012

Contraction Leads to Contraction. Go Figure.

Krugman on "What Greece Means": "But what Greek experience actually shows is that ... trying to eliminate deficits once you’re already in trouble is a recipe for depression. ... There is growing evidence that it is self-defeating even in purely fiscal terms ..."

The best way for a nation to pay off large debts is to invest in its future and increase revenue. We say it about businesses all the time, you have to spend money to make money. So why not apply to the gander that which we apply to the goose? Businesses have to spend money to make money. Households that want to increase their income have to spend money to make more money. While there are limits to how much one can reasonably compare a national economy to a household budget, some comparisons do hold: we can't increase our future earnings by slashing government investment in our future earnings.

Yet denying that truth remains popular among our conservatives. Krugman sums up the dangers of listening to them fairly well: "The truth is that if you want to know who is really trying to turn America into Greece ... it’s the people demanding that we emulate Greek-style austerity even though we don’t face Greek-style borrowing constraints, and thereby plunge ourselves into a Greek-style depression."

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