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Friday, December 13, 2013

Paul Krugman: The Biggest Losers

Fiscal policy has been "deeply destructive":

The Biggest Losers, by Paul Krugman, Commentary, NY Times: The pundit consensus seems to be that Republicans lost in the just-concluded budget deal. Overall spending will be a bit higher than the level mandated by the sequester... Meanwhile, Democrats avoided making any concessions on Social Security or Medicare. ...
But if Republicans arguably lost this round, the unemployed lost even more: Extended benefits weren’t renewed, so 1.3 million workers will be cut off at the end of this month, and many more will see their benefits run out in the months that follow. And ... since Republicans took control of the House of Representatives in 2010..., a triumph of anti-government ideology that has had enormously destructive effects on American workers.
First, some facts about government spending..., the actual numbers show that over the past three years we’ve been living through an era of unprecedented government downsizing. Government employment is down sharply;... government spending..., has fallen almost 3 percent since 2010 and around 5 percent per capita. ...
There are three things you need to know about these harsh cuts.
First, they were unnecessary..., markets have never shown any concern at all about U.S. creditworthiness..., borrowing costs have stayed at near-record lows...
Second, the cuts did huge short-term economic damage. ... The recent cuts ... took place at the worst possible moment, the aftermath of a financial crisis. Families were struggling to cope with the debt they had run up during the housing bubble; businesses were reluctant to invest given the weakness of consumer demand. Under these conditions, government cutbacks simply swelled the ranks of the unemployed — and as family incomes fell, so did consumer spending, compounding the damage.
The result was to deepen and prolong America’s jobs crisis. Those cuts in government spending are the main reason we still have high unemployment, more than five years after Lehman Brothers fell.
Finally, if you look at ... major areas that were cut, you’ll notice that they mainly involve investing in the future. So we aren’t just looking at short-term harm, we’re also looking at a long-term degradation of our prospects, reinforced by the corrosive effects of sustained high unemployment.
So, about that budget deal: yes, it was a small victory for Democrats. It was also, possibly, a small step toward political sanity...
But the larger picture is one of years of deeply destructive policy, imposing gratuitous suffering on working Americans. And this deal didn’t do much to change that picture.

    Posted by on Friday, December 13, 2013 at 01:08 AM in Economics, Fiscal Policy, Politics | Permalink  Comments (62)


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