June 08, 2010

Economic suicide

If you believe Krugman and DeLong, that's what the G20 is attempting.

Krugman:

So wise policy, as defined by the G20 and like-minded others, consists of destroying economic recovery in order to satisfy hypothetical irrational demands from the markets — demands that economies suffer pointless pain to show their determination, demands that markets aren’t actually making, but which serious people, in their wisdom, believe that the markets will make one of these days.

Awesome.

DeLong:
However, right now, as best we can tell, an increase in federal spending or a cut in taxes will produce (in the short run) no increase in interest rates and hence no crowding-out of productivity-increasing private investment. Indeed, government spending that adds to firms’ current cash flow may well boost private investment and so leave us, dollar for dollar, richer after the effect of the stimulus ebbs.

Why?

Because our debt today can be financed at extremely low interest rates—1.83 percent if financed via 30-year TIPS, and even less in expected real interest if financed over a shorter horizon.

I'm not as bright as either of those guys, but it seems blindingly obvious to me that what we need right now is
  1. growth, which will lead to more
  2. employment, which will lead to more
  3. tax receipts, which will lead to
  4. reduced deficits.
And that would satisfy the baying hounds demanding deficit reduction. It should be done in that order, not the other way round.

Posted by Linkmeister at June 8, 2010 12:09 PM | TrackBack
Comments

This is Shock Doctrine stuff.

Posted by: Scott at June 9, 2010 12:46 PM

Class warfare or sadism? Read Digby.

Posted by: Linkmeister at June 9, 2010 01:29 PM