Paul Krugman just posted an interesting chart on his New York Times blog detailing his brief, but aggressive argument over the fact that high debt does not lead to low growth, but the other way around.
The chart is of Japan through its deflationary period, where the country had consistent levels of high debt and low growth.
We get what Krugman’s saying, but there is a much easier way to explain this argument. He is not hammering home the point that yes, growth was slow regardless of debt in Japan due to deflation, but that increased Japanese government spending would have led to higher growth. And that the higher growth would have increased the pace the government, and private business, could pay down debt.
Maybe that’s because there is an opposite argument, that spending in such scenarios does not necessarily lead to growth.
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