Decreasing The Deficit Will Not Guarantee Confidence

Paul Krugman

Photo: NYtimes.com

Republicans theorize that a deficit deal would increase confidence in the business sector and financial markets, spurring economic growth all by itself. But there’s ample reason to suspect this “expanding by contracting” theory.Sadly, the Obama Administration appears to have swallowed it. Last week, several White House officials, including Director of the National Economic Council Gene Sperling, stressed deficit reduction as the primary component of their economic-growth strategy, and repeatedly claimed that reducing the deficit would generate “confidence.”

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