In recent days, New York Times economist Paul Krugman has been doing a whole bunch of interviews in which he has declared that the solution to our economic problems is very easy. Krugman says that all we need to do to get the global economy going again is for the governments of the world to start spending a lot more money. Krugman believes that austerity is only going to cause the economies of the industrialized world to slow down even further and therefore he says that it is the wrong approach. And you know what? Krugman is partly right about all of this. The false prosperity that the United States and Europe have been enjoying has been fueled by unprecedented amounts of debt, and in order to maintain that level of false prosperity we are going to need even larger amounts of debt. But there are several reasons why Krugman is mostly wrong. First of all, we have not seen any real "austerity" yet. Even though there have been some significant spending cuts and tax increases over in Europe, the truth is that nearly every European government is still piling up more debt at a frightening pace. Here in the United States, the federal government continues to spend more than a trillion dollars a year more than it brings in. If the United States were to go to a balanced federal budget, that would be austerity. What we have now is wild spending by the federal government beyond anything that John Maynard Keynes ever dreamed of. Secondly, Krugman focuses all of his attention on making things more comfortable for all of us in the short-term without even mentioning what we might be doing to future generations. Yes, more government debt would give us a short-term economic boost, but it would also make the long-term financial problems that we are passing on to our children even worse. (Read More....)
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