Thursday Open Thread

“Vitality shows in not only the ability to persist but the ability to start over.”

–F. Scott Fitzgerald

15 Community Comments, Facebook Comments

  1. Going back to a discussion had the other day – and vitally important to the decisions Congress will be making this year on the budget…

    Based on U.S. data, Auerbach and Gorodnichenko (2012b) have found that fiscal multipliers associated with government spending can fluctuate from being near zero in normal times to about 2.5 during recessions.

    This quote is extracted out of an IMF Working Paper (PDF, in a new window) that attempts to analyze the effects of austerity measures implemented in the Eurozone, and how those effects compare to forecasts.

    Translation: during and around a recession, fiscal austerity has a much worse effect on overall recovery than during normal times. Higher tax rates are also bad during a recession, though austerity is worse.

    This is, of course, simple validation on and quantification of Krugman’s Nobel-winning thesis. It’s also why the Greek economy sucks as much as it does today, and why Greece won’t be able to get out from under the thumb of the EU rescue plan any time soon.

    So, perhaps a working hint to Republicans: don’t f*sck with government spending until it’s healthy. (And consider re-upping the Making Work Pay tax credit for a year or two, to replace the Payrol Tax Holiday…)

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