Monday, May 28, 2012

Paul Krugman Counters Austerity On Maher Show

Nobel Prize-winning economist Paul Krugman appeared on Bill Maher's Real Time with Arthur Laffer, "the father of supply-side economics" and former Reagan advisor. Krugman spoke about government's role to stimulate a depressed economy, boosting jobs and consumer demand. Watch:

KRUGMAN: We are in a depression. We are actually in a classic depression. A depression is when nobody wants to spend. Everybody wants to pay down their debt at the same time. Everybody is trying to pull back, either because they got too far into debt, or because if they’re a corporation, they can’t sell because consumers are pulling back. The thing about an economy is that it fits together. My spending is your income. Your spending is my income, so if we all pull back at the same time, we’re in a depression. The way to get out of it is for somebody to spend so that people can pay down their debt, so that we don’t have a depression. So that we have a chance to work out of whatever excesses we had in the past, and that somebody has to be the government. We ended the Great Depression with a great program of government spending for an unfortunate reason. It was known as World War II…but when the war broke out in Europe, and we began our buildup, that Great Depression that had been going on for ten years. People thought it would go on forever. Learned people stroked their chins and said there are no quick answers. In two years, employment rose 20%. That’s the equivalent of 26 million jobs today, the depression was over. We had full employment, and it never came back, or it didn’t come back until 2008, because people managed to pay down those debts, and we managed to have a durable recovery.

Laffer offered a facile analogy regarding stimulus and Krugman's citation of history, stating, "I've never heard of a poor person spending himself into prosperity." He also offered standard supply-side bromides: to "incentivize producers"–i.e., "job creators"–we need to "lower tax rates." When does reality start to settle in with these "trickle down" theorists?

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