Saturday, February 23, 2013

Paul Krugman: In the US, Austerity Could Be Disastrous

Most analysts are, rightly, shrugging off the recent surprise report of an actual decline in fourth-quarter gross domestic product in the United States. It will probably be revised away, and in any case it's the result of one-off factors: a drop in inventories and a quirky sharp decline in defense spending.

Still, the report does highlight the role that shrinking government purchases of goods and services are playing in holding the economy back. And yes, I mean shrinking, not just growing more slowly than I'd like. Transfer payments like Medicare and Social Security are rising (although unemployment benefits are falling), but government purchases of stuff — mostly at the state and local level, where the stuff in question includes hiring schoolteachers — has been in fairly rapid decline.
 

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