Forget the Deficit: Spend, Spend, Spend!

We need massive fiscal expansion, not budget restraint: Krugman
By Jason Farago,  Newser Staff
Posted Dec 1, 2008 9:07 AM CST
President-elect Barack Obama listens to a reporter's question during a news conference in Chicago.    (AP Photo/Charles Dharapak, File)
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(Newser) – As the incoming administration prepares a massive fiscal stimulus to jolt America's floundering economy back to life, some are worrying about what billions in spending will do to the budget deficit. On the contrary, writes Paul Krugman in the New York Times: Deficit spending now will help, not harm, the country's long-term prospects, and worrying about the deficit during a crisis is both misguided and dangerous.

Both FDR in the late 1930s and Japan 60 years later tried to balance their budgets during times of recession; each time, writes Krugman, the result was a deepening of the malaise and a shrinking in private investment. Now, as consumers are saving and businesses scaling back, only the government can "take up the slack," or else "private investment, and the economy as a whole, will plunge even more."