Monday, November 10, 2008

stimulus or deflation

Paul Krugman urges Barack Obama to go for it with a real stimulus package - something the New Deal really wasn't, because of countering tax hikes and cuts in spending elsewhere.

Or, writes Robert Samuelson, we may face deflation. Sounds neat? It isn't. Deflation during the Great Depression was a pernicious dampener on the economy. Ask the Japanese, who experienced it themselves in the 1990s. Thanks to Greenspan and Bernanke persistently cutting the prime rate following the dot-com crash, it is at such low levels (1%) now that spurring the economy with further tax cuts isn't feasible any more. Again, something the Japanese experienced.

So - spend, baby, spend. Hopefully on useful things. Hey, there's a bridge in Minneapolis that could use help. And a bunch more like that one... And you could put a big bet down on energy research...

Yes, deficits do matter. But this isn't the time to cut them. The government can't afford to take cash OUT of the economy right now.

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