Krugman

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Austerity Gaff!

Let’s bring this argument between two economic theoreticians into the real world.  Keynesian Economics has lost some credibility in the real world not because of the theory, but rather how politicians have used it in practice over the past 3 or 4 decades. Austerity has become popular because politicians are not willing to admit  they have misused economic theory advocated by Keynes.

Keynes advocates government spending in recessions to offset the decrease in demand from the private sector. Keynes also advocates the paying down of government debt during good times in the public sector. During the last 40 years our politicians were happy to take credit for the government picking up the slack in slow times and reluctant to go to the voter in good times and say it was time to pay back the money Uncle Sam spent to spur the economy during the recession.
It is time for the politicians to go to the woodshed and admit their errors. It is not time to compound the consequences of these errors when our economy is in disarray and facing our stiffest competition since World War II. Stretching out the time period to get our debt under control from 10 years to a 15-20 year time frame gives future generations a chance to experience the same prosperity we have.
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We Should Stimulate and Help!

I can see where the chart that follows, taken from an article by Paul Krugman in the New York Times titled Debt And Growth In The G7; can justify the theory that we can afford to borrow additional funds in order to stimulate the economy. It does appear the world will not collapse from excess debt. However, it does suggest that over the longer run our debt as a percentage of GDP needs to be reduced. The second part of the question is will a stimulus help. So much of our consumption comes from overseas including oil from the middle east and goods from China. The result is that the funds borrowed quickly leave our shores and remain in other sections of the world. As a result we have borrowed money to help stimulate the economies of China and the middle east
Any stimulus we enact must be targeted to those projects that are investments in our future. They include fixing infrastructure such as roads and bridges, repairing schools, improving our education system, developing domestic energy, demolishing or repairing dilapidated buildings in our inner city, We should try to avoid directly stimulating the economies of other countries.
Another portion of what is spent should be looked at as helping our fellow man. Some of our citizens are hungry, they cannot properly clothe their children. We are Americans and we should help them. I could make an argument that our greatest asset for the future is our children and therefore it is economically justied to help them. Forget that.
The core reason we should help is we are Americans living in a country primarily based on Judeo-christian values. This is a big part of being proud to be American. There is nothing wrong with this, so let’s do it.