Sandi wrote:Ah yes. and why is Krugman including the states? He has always been one to play the numbers. As the saying goes: "Figures don't lie, but liars figure."
The national debate is about federal spending, not what the states are spending.
You have that backwards. What matters for creating demand and stimulating investment is the total being spent across all levels of government -- local, state, and federal. If the federal government boosted spending by $100 billion but states cut back by $200 billion, that net decrease would reduce economic activity and hobble growth.
During an economic downturn, households cut back on spending, and businesses cut back on spending. The government is the only actor able to break this cycle by stimulating demand that businesses can respond to.
The alternative, of course, is for government to cut spending too, which translates to reduced economic activity, further layoffs and disinvestment by businesses, and further cutbacks by households.
This downward spiral is exactly what's happening on the other side of the Atlantic. Is that the path we should be following? I don't think so!
If you are concerned about long-term government spending growth, the time to cut back is during an economic boom, not during a downturn. As people might recall, we actually had a substantial and growing budget surplus in 2000.
And a very important note -- cutting public spending is NOT the path we've followed during previous recessions under Reagan, Bush 1, or Bush 2. It's only when there's a Democrat in the White House that the conservative pundit class suddenly begins demanding austerity.