If You Needed More Proof That It's Stupid To Cut Governmnt Spending In A Weak Economy
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There are two basic approaches to fixing our crappy economy.
The first approach is called "austerity."
This logic for this approach rests on the theory that our economy is crappy because our government is spending more than it takes in and that the resulting deficit is creating "uncertainty." Once this deficit spending is reduced, this theory goes, uncertainty will ease, and confidence will return. And then our economy can recover in earnest.
The second approach is called "stimulus."
The logic for this approach rests on the theory that our economy is crappy because consumers are unemployed and broke and have little money to spend. Because consumers have little money to spend, this theory continues, the government should take up the slack and deficit-spend until unemployment drops and consumers have more money to spend. This government spending, in other words, will keep the blood flowing until the patient is healthy again.
Five years ago, economists were locked in a fierce debate about which approach was better--"stimulus" or "austerity."
Thankfully, that question has now been answered.