Apologies for a lack of open thread --- but as they say, no rest for the wicked and, gee, I must have been very bad to have so little rest....
Dr. Krugman talks about the fantasy land in which so many people seem to reside. Where every dollar Government spends is something to be deplored. Yet,
And the Tinkerbell principle NEVER applies to fiscal policy. If the government goes out and hires a million people to dig ditches, the direct effect is that a million people have been put to work digging ditches. It doesn’t matter whether people believe it will work. Some of the effect might be partially offset if people believe the government will have to raise taxes later (though not completely offset– we’ve had that discussion). The point, however, is that expectations effects if anything diminish the effectiveness of fiscal policy, which actually works best if expectations don’t change at all.
Putting people to work as teachers or bridge builders or oil spill cleaners has a net positive effect on our economy no matter what state the deficit is in when our country needs people to do those jobs. It's crazy to lay off teachers when the economy is bad. Would you put off fixing the leak in the roof when the result would be a unlivable house rather than going just a bit deeper in debt to get it fixed? As a country, we are not so poor we truly cannot invest in the things that keep the lights on. And teachers, bridge builders and oil-spill cleanup workers are all things we *should* be investing in, rather than worrying about whether the estate tax must be abolished.
To not invest in these essential services guarantees a much nastier and poorer future for almost all Americans. But then again, cutting government to keep Lloyd Blankfein's wealth intact should be something every red-blooded American would want to do. Because, maintaining wealth of the plutocrats is so much more important than the education of the future generation. Right?