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Paul Krugman: Deficits Matter Again

Monday, January 9, 2017 14:43
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(Before It's News)

Republicans are planning to “blow up the deficit mainly by cutting taxes on the wealthy”:

Deficits Matter Again, by Paul Krugman, NY Times: Not long ago prominent Republicans like Paul Ryan … liked to warn in apocalyptic terms about the dangers of budget deficits, declaring that a Greek-style crisis was just around the corner. But … tax cuts … would, according to their own estimates, add $9 trillion in debt over the next decade. Hey, no problem. …

All that posturing about the deficit was obvious flimflam, whose purpose was to hobble a Democratic president… But running big deficits is no longer harmless, let alone desirable.

The way it was: Eight years ago, with the economy in free fall, I wrote that we had entered an era of “depression economics,” in which the usual rules of economic policy no longer applied… In particular, deficit spending was essential to support the economy, and attempts to balance the budget would be destructive.

This diagnosis … was … always conditional, applying only to an economy far from full employment. That was the kind of economy President Obama inherited; but the Trump-Putin administration will, instead, come into power at a time when full employment has been more or less restored. …

What changes once we’re close to full employment? Basically, government borrowing once again competes with the private sector for a limited amount of money. This means that deficit spending no longer provides much if any economic boost, because it drives up interest rates and “crowds out” private investment.

Now, government borrowing can still be justified if it serves an important purpose…, infrastructure is still a very good idea… But while candidate Trump talked about increasing public investment, there’s no sign at all that congressional Republicans are going to make such investment a priority.

No, they’re going to blow up the deficit mainly by cutting taxes on the wealthy. And that won’t do anything significant to boost the economy or create jobs. In fact, by crowding out investment it will somewhat reduce long-term economic growth. Meanwhile, it will make the rich richer, even as cuts in social spending make the poor poorer and undermine security for the middle class. But that, of course, is the intention. …

But back to deficits: the crucial point is not that Republicans were hypocritical. It is, instead, that their hypocrisy made us poorer. They screamed about the evils of debt at a time when bigger deficits would have done a lot of good, and are about to blow up deficits at a time when they will do harm.



Source: http://economistsview.typepad.com/economistsview/2017/01/paul-krugman-deficits-matter-again.html

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