In 1929, President Herbert Hoover thought that the best response to a collapsing economy was to balance the federal budget. With incomes and tax receipts falling sharply, that meant cutting federal spending. But as almost all economists now recognize, President Hoover was profoundly mistaken.Economic View - When ‘Deficit’ Isn’t a Dirty Word - News Analysis - NYTimes.com
When a downturn throws people out of work, they spend less, causing still others to be thrown out of work, and so on, in a downward spiral. Failure to use short-run deficits to stimulate spending amplifies that spiral, causing further declines in tax receipts and even bigger deficits. That this path makes no sense is a settled issue.
Sunday, March 22, 2009
Economic View - When ‘Deficit’ Isn’t a Dirty Word - News Analysis - NYTimes.com
Posted by Anthony J. Pennings, PhD at 11:04 AM