NYT pundit and Nobel economist Paul Krugman makes the unpopular case (see below) for even more fiscal stimulus to improve the U.S. economy, both in the short- and long-term. In doing so, he quotes scary unemployment estimates that are probably rosier than reality, as former Labor Secretary Robert Reich just pointed out on his blog.
By Paul Krugman
October 2, 2009 | New York Times
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What is true is that spending more on recovery and reconstruction would worsen the government's own fiscal position. But even there, conventional wisdom greatly overstates the case. The true fiscal costs of supporting the economy are surprisingly small.
[For a more detailed, and extremely balanced discussion of the importance of deficits and national debt, see Krugman's book The Age of Diminished Expectations, an excellent primer for non-economists on modern political economy which gives ample consideration to all major competing schools of thought. -- J]
You see, spending money now means a stronger economy, both in the short run and in the long run. And a stronger economy means more revenues, which offset a large fraction of the upfront cost. Back-of-the-envelope calculations suggest that the offset falls short of 100 percent, so that fiscal stimulus isn't a complete free lunch. But it costs far less than you'd think from listening to what passes for informed discussion.
Look, I know more stimulus is a hard sell politically. But it's urgently needed. The question shouldn't be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no.
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