Krugman on Austerity and the "Confidence Fairies"

You can't get clearer about the dangers facing the US economy. Here's Paul Krugman pointing out the intellectual bankruptcy of those calling for "austerity" and their crazy belief that if you pledge to cut the deficit then business will rush out and spend to expand capacity and hire a bunch of new employees to build stuff that nobody wants. As Krugman points out, business doesn't go out on a limb like that. Business in scary times is cautious. That's why the government has to step up and provide the missing purchasing until business gets its confidence back. Then you do austerity. Then you get the deficit under control and bring down long term debt...



What is utterly amazing is that some right wing economists have buried their head in the sands and are calling for "austerity" and that politicians are willing to follow this call for a "morality play" where virtue will be rewarded, if only we flay ourselves with austerity, then the confidence fairies will descend from the heavens and shower economic growth upon us. It is completely ludicrous!

By the way... here's Paul Krugman's take on the above appearance on Good Morning Ameria:

I was on Good Morning America this not-so-good morning, doing what I could. But I was struck by something that George Stephanopoulos said: he claimed to have been speaking to an administration official who asserted that what we need to get businesses investing is for business to know that the government has stopped — presumably, that means no new spending, no new regulation, whatever.

GS [George Stephanopoulos] is a careful guy, so this must be true. And it’s shocking — not that people are saying this, but that someone inside the administration is saying it.

It’s garbage, of course: businesses are refusing to invest because they don’t see enough demand for their products. And administration economists know that it’s garbage. But obviously some people in the WH — I’m guessing a political person, but who knows — have bought the right-wing line hook, line, and sinker.