Friday, March 4, 2011

Killing the Recovery

Mark Thoma at Economist's View highlights today's Paul Krugman column in the NYT called "How to Kill a Recovery."

Here's the bit that scares me:

Of course, Republicans believe, or at least pretend to believe, that the direct job-destroying effects of their proposals would be more than offset by a rise in business confidence. As I like to put it, they believe that the Confidence Fairy will make everything all right.

This type of pre-Machiavellian superstitious thinking is exactly what led the British to institute austerity measures, and the results were disastrous. Business confidence is a function of economic conditions, not of politicians projecting certain classical values like prudence or responsibility in some abstract sense.

Unfortunately Republicans are in control of the House, so they're likely to get their way on some of this stuff. But Obama should not be out in public conceding the argument that we have to cut the budget and reduce the deficit. The right way to reduce the medium-term deficit is to spend much more - disburse funds to the states on a per capita basis to allow them to close their budget gaps without laying off workers, and to institute a federal hiring program to employ workers who are willing and able to work but not able to find work.

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