Extraordinary Popular Delusions and the Madness of Crowding Out, by Paul Krugman, in NY Times: Just a note: I keep seeing, both in comments here and in the broader discussion, assertions to the effect that government spending can’t create demand or jobs — basically, the claim that there must always be 100 percent crowding out.
What I wonder is how this belief manages to persist, indeed be regarded as unquestionable truth, given the world we’ve been living in for the past few years.
After all, if there’s 100 percent crowding out, there must also be 100 percent crowding in — slashing government spending must lead to an offsetting rise in private spending.
So, have you looked at Greece or Ireland lately?
The totally evident negative effect of austerity policies on growth and employment is a clear demonstration that all claims about the irrelevance of government spending to job creation are wrong. I understand why people don’t want to believe this; but how can they not at least feel some doubt about their faith when they look at the world?