Krugman Editorializes Why Stimulus Does Not Work

December 13th, 2010
in Background

Noble Laureat Paul Krugman, in a blistering NY Times Op-Ed - editorialized why extending the Bush tax plan will not stimulate the economy.   He stated:

What the government should be doing in this situation is spending more while the private sector is spending less

Follow up:

, supporting employment while those debts are paid down. And this government spending needs to be sustained: we’re not talking about a brief burst of aid; we’re talking about spending that lasts long enough for households to get their debts back under control. The original Obama stimulus wasn’t just too small; it was also much too short-lived, with much of the positive effect already gone.

Professor Krugman does not like stimulus for the private sector.

The point is that while the deal will cost a lot — adding more to federal debt than the original Obama stimulus — it’s likely to get very little bang for the buck. Tax cuts for the wealthy will barely be spent at all; even middle-class tax cuts won’t add much to spending. And the business tax break will, I believe, do hardly anything to spur investment given the excess capacity businesses already have.

Krugman admits that this bill will have positive effects on the economy but points out:

The question, then, is whether a year of modestly better performance is worth $850 billion in additional debt, plus a significantly raised probability that those tax cuts for the rich will become permanent. And I say no.

Original Op-Ed - click here.

 















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