Krugman Is Answered, Again

Paul Krugman took to his perch on the NYT Editorial page yesterday to make yet another statement on macroeconomics that struck me as misguided when I first read it. But since Krugman won the NOBEL PRIZE, I generally feel I ought to defer to him. Unless of course, real economists also say he's crazy.

Which brings me to this post from our friends at Cato. Krugman states in his column today that "Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea — not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts."

Cato's answer concentrates on the "slashing spending" part--pointing to the post-WWII US experience in which spending was cut dramatically in one year. In Krugman's defense (or is it contra-Cato), the US was hardly suffering from "high unemployment" at war's end--though the return and discharge of millions of servicemen did raise that specter.