This is silly

Reader comment on: Krugman on Spending

Submitted by Alex (United States), Nov 7, 2010 01:13

This argument is profoundly silly and misleading. Like the post above mentions, states and municipalities cut back their spending. A big chunk of the stimulus was combating those cutbacks. A second reason the argument is misleading is that this post seems not to understand what a federal outlay to GDP ratio implies. The equation divides federal outlays by GDP. There are two ways to raise that. The first is boosting outlays (increasing the numerator). The second is decreasing GDP (decreasing the denominator). In 2011, we're in a severe economic downturn, with unemployment hovering around 10%. That unemployment number also triggers auto-stabilizers like unemployment benefits that necessarily come with a distressed economy. So, yes, federal spending did increase somewhat in the aftermath of the financial crisis. But that increase was largely aid to states and localities that cut back and automatic stabilizers, and its proportion as a percentage of GDP rose that much largely because GDP shrank more than it has since the Great Depression.

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