Tuesday, May 4, 2010

To what extent does stimulus spending raise the debt?

Paul Krugman posted an interesting chart from the IMF on his blog today.  It clearly shows why today's manic right-wing opposition to government stimulus in the midst of a deep recession is irrational:
What’s striking here is that fiscal stimulus is a small player. It would be even smaller if one took into account the fact that stimulus has made economies stronger than they would otherwise have been, leading to higher revenues and smaller unemployment benefits.

What dominates the picture instead is the consequences of the slump, in falling revenues and higher social insurance payments...

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