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Notes to myself, possibly of interest to others.
-- Bill Northlich

Sunday, May 16, 2010

Krugman: Another argument for deficit spending?

Paul Krugman, 5/15:  "The IMF has a new report...the report says is that there has been a fundamental deterioration in the fiscal outlook for advanced countries. Not only are they running up a lot of debt in the crisis, but — and much more important — they will emerge from the crisis with large structural deficits that weren’t there before. So spending cuts and tax increases loom."
"...I’m pretty sure that if you take the IMF’s model of the effect of slumps on potential output seriously, it actually implies that increasing government spending in a slump more or less pays for itself: it leads to higher output not just in the short run but in the long run, and therefore leads to higher revenue that very likely more than offsets the original expense. I’m not saying that this is necessarily the truth, but it is an implication of the long-run pessimism that underlies this IMF report."

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