Thursday, March 15, 2012

How The Govt Differs From A Household

Another good quip from Krugman in "Losing the Belt",
"When a family tightens its belt it doesn’t put itself out of a job. When a government tightens its belt in a depressed economy, it puts lots of people out of jobs; and this is a negative even from the government’s own, narrowly fiscal point of view, since a shrinking economy means less revenue.

Now, you might argue that slashing government spending doesn’t actually cost jobs — that is, you might argue that if you spent the past few years in a cave or a conservative think tank, cut off from any information about how austerity is working in practice."
That really is a core difference. When a family tightens its belt, it doesn't lower its household income by making one or more family members quit their jobs. When the govt tightens its belt, it pushes people out of work, lowering its own income.

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