End This Depression Now! by Paul Krugman

Author:Paul Krugman
Language: ru
Format: mobi, epub, pdf
Publisher: W. W. Norton & Company
Published: 2012-03-25T20:00:00+00:00

CHAPTER EIGHT

BUT WHAT ABOUT

THE DEFICIT?

There may be some tax provisions that can encourage businesses to hire sooner rather than sitting on the sidelines. So we’re taking a look at those.

I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.

—President Barack Obama, on Fox News, November 2009

BY THE FALL OF 2009 it was already obvious that those who had warned that the original stimulus plan was much too small had been right. True, the economy was no longer in free fall. But the decline had been steep, and there were no signs of a recovery fast enough to bring unemployment down at anything more than a glacial pace.

This was exactly the kind of situation in which White House aides had originally envisaged going back to Congress for more stimulus. But that didn’t happen. Why not?

One reason was that they had misjudged the politics: just as some had feared when the original plan came out, the inadequacy of the first stimulus had discredited the whole notion of stimulus in the minds of most Americans and had emboldened Republicans in their scorched-earth opposition.

There was, however, another reason: much of the discussion in Washington had shifted from a focus on unemployment to a focus on debt and deficits. Ominous warnings about the danger of excessive deficits became a staple of political posturing; they were used by people who considered themselves serious to proclaim their seriousness. As the opening quotation makes clear, Obama himself got into this game; his first State of the Union address, in early 2010, proposed spending cuts rather than new stimulus. And by 2011 blood-curdling warnings of disaster unless we dealt with deficits immediately (as opposed to taking longer-term measures that wouldn’t depress the economy further) were heard across the land.

The strange thing is that there was and is no evidence to support the shift in focus away from jobs and toward deficits. Where the harm done by lack of jobs is real and terrible, the harm done by deficits to a nation like America in its current situation is, for the most part, hypothetical. The quantifiable burden of debt is much smaller than you would imagine from the rhetoric, and warnings about some kind of debt crisis are based on nothing much at all. In fact, the predictions of deficit hawks have been repeatedly falsified by events, while those who argued that deficits are not a problem in a depressed economy have been consistently right. Furthermore, those who made investment decisions based on the predictions of the deficit alarmists, like Morgan Stanley in 2010 or Pimco in 2011, ended up losing a lot of money.

Yet exaggerated fear of deficits retains its hold on our political and policy discourse. I’ll try to explain why later in this chapter. First, however, let me talk about what deficit hawks have said, and what has really happened.

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