Krugman: Why deficit spending now will HELP not hurt future generations

[pnwmom]

This article is by the progressive economist and Nobel Laureate, Paul Krugman. I hope that before anyone jumps in to criticize it, they will actually go to the link and read the whole thing. (It's not too long, but I can't copy it here without infringing on copyright.)

http://www.nytimes.com/2008/12/01/opinion/01krugman.html?_r=1&scp=5&sq=krugman&st=cse

Right now there’s intense debate about how aggressive the United States government should be in its attempts to turn the economy around. Many economists, myself included, are calling for a very large fiscal expansion to keep the economy from going into free fall. Others, however, worry about the burden that large budget deficits will place on future generations.

But 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 claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.

But circumstances right now are anything but normal. Consider what would happen next year if the Obama administration gave in to the deficit hawks and scaled back its fiscal plans.

MORE AT LINK.

[applegrove]

1. Very interesting.