11/29/2012

Does Krugman understand that there is both Supply and Demand?

Low interest rates can be due to two reasons.  Either people don't find the US an attractive place to invest (demand has shifted down) and/or the supply of funds is increasing.
Far from fleeing U.S. debt, investors have continued to pile in, driving interest rates to historical lows. . . .
So Krugman's solution?  With massive debt, the solution is yet more debt.
Beyond that, suddenly the clear and present danger to the American economy isn’t that we’ll fail to reduce the deficit enough; it is, instead, that we’ll reduce the deficit too much. For that’s what the “fiscal cliff” — better described as the austerity bomb — is all about: the tax hikes and spending cuts scheduled to kick in at the end of this year are precisely not what we want to see happen in a still-depressed economy. . . .
Does anyone notice what a failure these policies have been for the countries that have adopted them (see here)?

UPDATE: Michael Tanner has some notes on Krugman here.

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1 Comments:

Blogger Mark said...

Seems to me that gov't spending as a percent of GDP is always going to be counter cyclical (i.e., spending increases whenever GDP goes through a period of a negative shock). If so, then I would expect a negative correlation between spending and growth or employment, whether or not multipliers are positive or negative. Wonder what your results would look like if you used as the independent variable, the residual of spending change versus GDP change in the bad period (maybe 2007 - 2009), and then look at how subsequent GDP changes, as a function of that residual. I.e., trying to answer the question, for countries that had bigger increases in spending given their level of negative GDP shock, did such countries do better or worse than similar GDP-shocked countries with lesser increases in spending?

11/30/2012 9:09 AM  

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