Paul Krugman: More Marcoeconomics


 

No, that’s not a misspelling of “macroeconomics”.

Matt O’Brien beats me to it: Marco Rubio’s SOTU response also included a shout-out to Say’s Law:

Every dollar our government borrows is money that isn’t being invested to create jobs. And the uncertainty created by the debt is one reason why many businesses aren’t hiring.

I know where he gets this stuff: it’s what the Heritage Foundation guys were saying four years ago. It was obviously wrong even then: we have an excess of desired savings over desired investment — that’s why the economy is depressed! — so it makes no sense to assume that government borrowing must crowd out private investment dollar for dollar, or indeed at all.

But some things have changed over these past four years. Back then, the Heritage guys, Niall Ferguson, etc. made a prediction: those government deficits supposedly competing for funds with business would send interest rates soaring. Instead they hit record lows. And we also have evidence on what happens when government try to slash deficits in a depressed economy. Here’s IMF data for all advanced countries, where austerity is measured by the change in the structural budget balance as a percentage of potential GDP:

Contractionary policy has proved contractionary.

So Rubio has embraced an economic doctrine that was fairly stupid to begin with, and has produced ludicrously wrong predictions these past four years; this on top of accepting a completely bogus story about how we got into this mess in the first place. The GOP’s savior!

More Marcoeconomics – NYTimes.com

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