Krugman: Spend Now, Save Later

[axt113]

richardhutnik said:

axt113 said:

richardhutnik said:

axt113 said:

The key problem is that companies will not hire until they see consumers return to spending en masse, without the need for big discounts, right now that isn't there, spending has increased, but consumers are still being careful with their expenditures and demanding big discounts for their business, for businesses, this means that they are going to be hesitant to invest, or hire, and any money they get through tax breaks, etc. will just go into shoring up their financials, can't really blame them, because they want to make sure that if the economy slides again, they can weather the storm, but if they don't hire, then people are going to remain hesitant with their spending, kind of a catch 22 type deal, which is why government expenditure is needed until companies start hiring and people get back to spending.

Consumers have maxed out all their available sources for credit.  They aren't going to return.  And how exactly is government spending, driving up the deficit to record levels going to address the issue of consumer spending?  Why would a business expand to take government money, when consumers returning en masse is what counts?

A few reasons, not all businesses sell directly to the consumer market, this is where the government can influence the economy, construction, defense, other contracting, etc. etc., not to mention, government hiring, this results in people being hired, because as companies gain contracts, or government expands, they need more workers, this results in people having more income and a greater ability to spend, this fuels consumer spending, because when someone has a stable source of income, they are more willing to buy, this encourages companies to produce goods and services, and as demand grows, even expand production and investment, meaning more jobs.

The thing is, the government has been already doing this.  The government is a fairly sizable percentage of the GNP as it is now.  It has been.  The problem is that the government work you propose isn't sustainable.  It is like the census work.  What needs to happen is the economy needs to naturally produce jobs that are part of the ecosystem normally and needed to function in the eocnomy, or they don't last.  While what you are saying is true, your solution isn't one that is sustainable.  About the ONLY sustainable thing would be to hire people to upgrade the infrastructure and somehow hope that makes a difference (like it did with the Internet).  But, you know what, that is done through pork normally?

At what point do you say enough is enough with the government getting involved here, and having things take care of itself?  The problem with government spending is that it is an outflow of cash and not an intake of cash, so you drive deficit spending up much further, and consume future money.  Eventually either there is a default solution, or the government begins to crank out cash to pay the debt, and thus there is hyperinflation.

I will also say, if there is deflationary pressure, it is because everything is too expensive, and not at a sustainable price.

Census is known to be short term it happens once a decade, most government work is more long term a few years at least, the economy will only naturally product jobs, if there is something driving job growth, consumption, technological innovation, private investment, etc. but those drivers are not operating at the moment, this is the problem with this recession compared to most recessions, this is why the Government expenditure is a must.

If things could take care of themselves then I would say time to pull back on spending, but they won't that's what you aren't getting, if we pull back now, the bottom will fall out because there is nothing to keep it going on its own.