Cuts, deflation and redistribution

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The above is not the title Paul Krugman used for a recent blog, but it could have been. he said:

[O]n average, debtors are more likely to be constrained by their balance sheets than creditors. The 1929-33 plunge in prices made heavily mortgaged farmers poorer, while making wealthy people sitting on cash richer; but while the farmers were forced to slash spending to make their payments, the people sitting on cash merely had the option of spending more — an option many didn’t take. Or, to lapse into economese, the marginal propensity to spend out of wealth is surely higher for debtors than for creditors, so the redistribution of real wealth caused by deflation is contractionary. And conversely, redistribution through inflation raises overall demand.

Cuts could easily tip us towards that deflation and contraction.

But the rich would get richer.

So do the ConDems care?

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