Krugman On The G-20

The other day I wrote that what was important at the moment wasn't worrying about deficit spending, it was getting people back to work. Paul Krugman came at this from a slightly different angle today, in reaction to what a joint message from the G-20 summit:

But don’t we need to worry about government debt? Yes — but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future debt by less than 0.5 percent of GDP.

Lost Decade, Here We Come

In short, reducing debt now is counterproductive, even if your only objective is reducing debt.

The "lost decade" he's referring to in the article's title is Japan's "Lost Decade", a time of slow growth that followed their own fiscal austerity program in the 1980s. There are many parallels between this and our current situation, both in how it began and how it was extended beyond any reasonable period by the reluctance of Japan's leaders to reign in their banks. Instead, it raised taxes in the mid-90s, just as the economy was starting to recover. That, plus a strong Yen and an aging workforce, helped extend the recession for several years. You don't even need to go back to 1937, as this economist did, to realize this is a foolish thing to do.

We're ruled by lunatics.

UPDATE: Another good quote about the G-20 comes from Ian Welsh, who answered a question that I'd wondered about in a comment on an earlier article:

Being in debt is considered to be bad, at least for a government. Considering the high levels of consumer debt here, that in itself is amazing. I wish I knew what the answer to that was, but I don't.

Ready For That Second Dip? (Comment 2)

Ian reminded me that it isn't all that mysterious:

If ordinary citizens are going to have pay the bills for the bailouts, and don’t feel they’re seeing the benefits (they aren’t) the logical reaction is to say “stop!”

Now, of course, this isn’t why the elites are crying for it to stop. They want it to stop because they’ve been saved. Corporate profits have pretty much recovered. So why spend money helping the middle class and poor folks?

One Reason Why Hooverism Is On The Rise

One thing that's often lost in the debate over whether the stimulus worked, at times deliberately I'm sure, is that to the average guy in the street, it hasn't worked. At least, it hasn't done its alleged job, which is to right the economy. In some sense, it clearly did work. The economy would have been worse without it. But, as many of us warned, it wasn't anywhere near enough to get the economy going again, even assuming that the government had done all the other things necessary, like curbing the banks and investment houses. Meanwhile, people heard about TARP, and all the other money we poured into the banks to keep them afloat, and all they see is that one out of every five of us still can't find a job.

As much as I've harped on the health care bill, and the consequences of failing to deliver one that helps ordinary Americans, this failure to either fix the economy, or at least give us hope that things can get better soon, is what is going to kill the Democrats in this election. They screwed up, and they screwed up at doing the sort of thing they're supposed to be good at, which is making things more bearable during the hard times. Failing to pass a useful health care bill just reinforces that impression. They have shown themselves to be utterly useless, and unless they wake up, they're going to be feeling the pain this November.

But then, I've harped on that before, haven't I?