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View Diary: Romney in London: The embarrassments are the sideshow, the real story is the economy (51 comments)

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  •  And there it comes... false comparison of a govt (6+ / 0-)

    to an individual's personal finances.

    Krugman:

    The boom, not the slump, is the right time for austerity.” So declared John Maynard Keynes 75 years ago, and he was right. Even if you have a long-run deficit problem — and who doesn’t? — slashing spending while the economy is deeply depressed is a self-defeating strategy, because it just deepens the depression.

    -snip-

    The bad metaphor — which you’ve surely heard many times — equates the debt problems of a national economy with the debt problems of an individual family. A family that has run up too much debt, the story goes, must tighten its belt. So if Britain, as a whole, has run up too much debt — which it has, although it’s mostly private rather than public debt — shouldn’t it do the same? What’s wrong with this comparison?

    The answer is that an economy is not like an indebted family. Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income.

    So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.


    In my honor he pulled out old forgotten dignity and walked straight in a crooked world. ~~poetry of young Barack Obama

    by bronte17 on Sun Jul 29, 2012 at 03:39:03 PM PDT

    [ Parent ]

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