Krugman: Spend Now, Save Later

[richardhutnik]

HappySqurriel said:

richardhutnik said:

mrstickball said:

numonex said:

Spend more money through Economic Stimulus or implement harsh Economic Austerity measures? Both measures will result in much bigger debts. What is the lesser of the two evils?

How will austerity lead to bigger debts? Please explain.

Let's assume that we aren't looking at unsustainable malconsumption in the economy and spending generated by an economic stimulus goes towards buying news houses or basic needs and wants.  Doing this generates growth, and causes an increase in tax revenues.  In the case where people don't spend money, then the economy can contract and there is insufficient tax revenues generated.  Thus, you run up larger debts.

What is a problem here is presuming that larger debts are an unavoidable norm.  In this, you are setting a spiral into doom to happen.  Eventually the debts do have to be paid, irregardless if you keep telling yourself that "the debt is only X% of GDP and is sustainable".

One of the core elements that led to this current economic crisis was the market was manipulated to create artificial demand in the housing market to create the illusion of economic growth; how is what you’re suggesting any different from the situation we’re still recovering from?

That is an element.  Also included in this to is a consumer driven economy with people maxing out their credit cards.