Krugman on the blessings of austerity; and how it works its magic

[pscot]

This is from his blog. http://krugman.blogs.nytimes.com/

Do the dismal economic numbers really reflect the turn to fiscal austerity? I keep hearing people say no, because austerity hasn’t actually happened yet in America. But they’re wrong.

The fact is that the fading out of the stimulus, and in particular of aid to state and local governments, is already and noticeably leading to substantial withdrawal of government demand. Look, in particular, at actual government purchases of goods and services — governments at all levels buying stuff — which is what standard macroeconomics says should have the highest multiplier, since unlike transfers and tax cuts it is by definition spent rather than saved. Here’s the picture, showing changes in real spending over the previous year




spending was rising at an annual rate of around $60 billion; now it’s declining at an annual rate of $60 billion. That difference is around 1 percent of GDP, and maybe 1.5 percent once you take the multiplier into account. That makes the turn toward austerity a major factor in our growth slowdown.

Still, I guess the beatings will continue until morale improves.

[ixion]

1. k/r (rec to 0)

and the fact that people unrec this is indicative of the problem we're facing: Politicians and political hacks who refuse to accept what's going on, preferring instead 'framing'. :grr: