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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: Steve Lokness who wrote (102991)	2/3/2009 6:22:36 PM
From: TimF	Respond to of 542269

But even you in allll this post make no mention of paying back the money we borrow today for our lifestyle. How do we pay it back - without harming our economy in a measurable way in the future? That is my biggest fault with Krugman's thinking. I haven't seen where he has ever explained that adequately. I think that Krugman thinks that having to pay it back in the future will cause harm, but that we pay it back when things are better, so that even if we haven't increased the overall growth rare over the whole cycle, we've made things better in the bad times, while making them worse in the good times, keeping the overall growth the same, but smoothing it out, so avoiding some suffering in the bad times. (If I'm wrong and he really does think government spending is a permanent free lunch, than maybe I would have used the term "fruitcake", but I doubt that's really what he thinks.) That sounds like an ok goal to me, but even to the extent that stimulus can work its very hard to size or time appropriately (and Krugman's though that bigger is better, just make it as big as possible seems rather bizarre to me). Also I see the smoothing, even when it is timed right and does work, as something that incurs a cost. I'm not sure Krugman does. I don't read anywhere close to everything he writes so I could easily have missed it but I don't see anything from him along the lines of "the moderate price in overall growth is worth it to smooth out the cycle". He seems to think the whole process is essentially without cost. Where does the cost come from? Well for one thing you have the disruptions from the inflationary aspect of a bailout and stimulus. Even if its done in a deflationary period, your setting yourself up for either inflation, or harsh measures to contain inflation, or maybe even both in the future. For another your reducing efficiency by having investment decisions decided more by politics. Then when government starts handing out the dough, your creating an incentive to lobby the government for that money. Time spent lobbying detracts from time spent in productive activity.