Krugman Editorializes Why Stimulus Does Not Work

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, 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.