Krugman: balanced budget would be “worst thing for future generations” | Left Foot Forward

Posted on

Krugman: balanced budget would be “worst thing for future generations” | Left Foot Forward.

Left Foot Forward picks up on recent Krugman comments:

Last week Left Foot Forward showed how UK business investment was in a state of collapse. The US is suffering the same problem and Nobel prize winner Professor Paul Krugman has written about the necessary policy response on his ‚ÄòConscience of a Liberal’ blog.

Krugman writes:

“Under the kind of conditions we’re now facing, the main determinant of business investment is the state of the economy, as evidenced by the plunge in investment shown in the figure. This, in turn, means that anything that improves the state of the economy, including fiscal stimulus, leads to more investment, and hence raises the economy’s future potential.

“That is, under current conditions deficit spending doesn’t lead to crowding out ‚Äî it leads to crowding in. In fact, you could argue that the worst thing we can do for future generations is NOT to run sufficiently large deficits right now.”

The target: George Osborne. So let's take another quote about Osborne, from another solid Keynesian, Roberst Skidelsky:

Keynes's crucial distinction between full employment and subnormal employment was totally ignored by George Osborne in his speech "The Conservative Strategy for Recovery" last week. At no point in his speech did Osborne mention that UK output has fallen by 5pc since last October and unemployment has risen by over one million. The gap between what we can produce and what we do produce has grown to more than £70bn. This is because, as a nation, we are spending £70bn too little.
Almost all that Osborne said is right and sensible in conditions of full employment; most of it is wrong and wrong-headed when there is heavy and persisting unemployment. Although he understands that we have been in the deepest recession since the war, his strategy for recovery assumes that there is nothing to recover from – except a Labour government!
Osborne's ignorance scares me.
The fetish of the mexdia for cuts scares me as much.
I'll bespeaking about this on the Labour fringe tonight. 6pm Quaker Meeting House, Brighton, for those interested.