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Thursday, June 17, 2010

Krugman: "That '30s Feeling"

by Calculated Risk on 6/17/2010 11:59:00 PM

From Paul Krugman in the NY Times: That '30s Feeling

Suddenly, creating jobs is out, inflicting pain is in. Condemning deficits and refusing to help a still-struggling economy has become the new fashion everywhere ...

Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession.
And as if on cue, from Alan Greenspan wrties in the WSJ: U.S. Debt and the Greece Analogy
An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers. If so, it is none too soon.
I believe Greenspan is flat wrong - just as he was in 2001 when he Greenspan spoke of "an on-budget surplus of almost $500 billion ... in fiscal year 2010". Greenspan offered a projection of "an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs."

I argued Greenspan was wrong then, and I believe he is wrong now.

I believe the focus right now needs to be on jobs, jobs and jobs.