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Government Stimulus During Recession

The Nobel Laurete Paul Krugman,in his shockingly offensive article has put forward some solutions to the present economic crisis-Each one of them wrong and a dangerous step to take.He says that the nonfinancial economy is too desperately need of “help”. “The government should spend and spend.Let fiscal responsibility go to hell.We shouldn’t be concerned about the budget deficit at all.”

Let us take his points one by one.

1) “The Federal Government can can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it.”

Wouldn’t extending benefits prolong unemployment? Wouldn’t it delay the shift of workers to fields where jobs are available? In the first place,the money put in the hands of the distressed families is taken from the tax payer.To say that it would increase spending is tantamount to saying that a robber would give a boost to the retail trade.In the second place,what we need isn’t more spending and consumption,but more saving and investment.

2) “The Federal Government can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. What we need right now is more government spending.”

The only way the government can help not to prolong the depression is to reduce its role in the economy.It involves cutting taxes-especially taxes which tampers with saving and investment. It should also be kept in mind that all government spending is consumption.The ideal policy is laissez faire-Not to interfere in the economy in any manner.

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