Spend, Spend, Spend. But Who Pays?

Paul Krugman in his New York Times column yesterday chastises the Obama administration for not pushing for a sufficiently large enough stimulus package to juice the economy.

“Would the Obama economic plan, if enacted, ensure that America won’t have its own lost decade?” he asks. “Not necessarily: a number of economists, myself included, think the plan falls short and should be substantially bigger.”

Given this morning’s news that the economy shed nearly 600,000 nonfarm jobs last month–the biggest monthly loss since 1974–the case for government stimulus never looked stronger. All the more so if deflation threatens, which it clearly does.

But no one ever said that spending vast sums of money–the current stimulus plan circulating in Congress now tops $1 trillion–insures a quick fix for the economy, or any fix. That doesn’t mean that government stimulus should be off the table, but no one should expect that spending such astronomical amounts of money comes without risks.

Benn Steil, director of international economics at the Council on Foreign Relations, wonders where the financing for the stimulus will come from. As he writes in today’s FT,

Nobel Prize-winner Paul Krugman, who calls today “The Keynesian Moment”, justifies such a trillion dollar investment programme on precisely the Keynesian foundations that Rueff demolished – the claim that money “would otherwise be sitting idle”. When Mr Krugman buys his stimulus bonds, I am curious where the “idle” money will come from. Will he sell stocks? Bonds? Withdraw funds from the banking system? If it is not to come from a cash box, it is not idle, and Mr Krugman can only fall back on the hope that the government will use his funds more productively than businesses can.

About James Picerno 894 Articles

James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers.

Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg, Dow Jones, Reuters.

Visit: The Capital Spectator

Be the first to comment

Leave a Reply

Your email address will not be published.