Krugman: Don’t Stop Spending

By Ben Cohen

Krugman warns that the stimulus must continue, despite the Right’s calls to reign in spending:

The first example of policy

in a liquidity trap comes from the 1930s. The U.S. economy grew rapidly

from 1933 to 1937, helped along by New Deal policies. America, however,

remained well short of full employment.

Yet policy makers

stopped worrying about depression and started worrying about inflation.

The Federal Reserve tightened monetary policy, while F.D.R. tried to

balance the federal budget. Sure enough, the economy slumped again, and

full recovery had to wait for World War II.

The second example is

Japan in the 1990s. After slumping early in the decade, Japan

experienced a partial recovery, with the economy growing almost 3

percent in 1996. Policy makers responded by shifting their focus to the

budget deficit, raising taxes and cutting spending. Japan proceeded to

slide back into recession.

And here we go again.

Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.