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Lost Decade, Here We Come - Paul Krugman Blog - NYTimes.com
It's basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.

But don't we need to worry about government debt? Yes -- but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future debt by less than 0.5 percent of GDP.
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Yet the conventional wisdom now is that these countries must nonetheless cut -- not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn't) sometime in the future.

Utter folly posing as wisdom. Incredible.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Sun Jun 6th, 2010 at 11:27:53 AM EST

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