Forget The Deficit For Now! Ask UK & Ireland.

imagePaul Krugman had a very short blog today that I thought was worth mentioning. Sometimes we can say a lot by saying little.

It continues to amuse me that Mitt Romney is given accolades for being the job creator and businessman. Sadly he simply disregarded one of the basic tenets of Economics 101, if government shrinks spending (reduce the deficit) without any other source spending, the economy will be depressed further and government revenue will fall further exacerbating the deficit. This is not conjecture. One simply need follow UK and Ireland.

Secondly, he also forgot the concept of marginal propensity to consume. While businesses have unspent trillions on the table, further tax cuts to them will not induce business activity or spending. Tax cuts to the middle class and selective credits to the poor will generate economic activity as they immediately put that money to work causing businesses to put all their pent up capital to work for profit.

If the jobs bill in congress were passed, the economic activity generated would have had the country much further ahead in employment. To put it bluntly Romney’s allies have held the American economy and with that every middle class and poor citizen hostage in the attempt to win an election. Mitt Romney has pretty much promised to follow the policies that were causal in the demise of the American economy even as it made a select few very rich.

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An Elite Obsession

by Paul Krugman October 21, 2012, 2:32 pm

David Dayen makes a very good point, which I missed: during the Hofstra debate, in which questions were posed by members of the public rather than the Beltway elite, there wasn’t a single question about the deficit. Not one. The public really doesn’t care.

And you know what? Neither do financial markets, which continue to lend to the U.S. government at incredibly low rates.

Meanwhile, the results from austerity are in — and it’s now clear that the adverse economic impacts of austerity in a depressed economy are much worse than the elite imagined (although Keynesian economists knew better), and are in fact so severe that austerity is largely self-defeating, having little impact on the budget deficit even in the short run because reduced revenue takes away much of the initial savings. Once you take long-run effects into account, austerity is almost surely self-defeating.

Yet deficit fever, with demands for spending cuts right away, has dominated policy discussion for almost three years, with all the Very Serious People believing that by pounding on this issue they were demonstrating their Very Seriousness.

An Elite Obsession –