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Home Publications Blogs Beat the Press British Prime Minister Proposes Plan to Slow Growth, Raise Unemployment

British Prime Minister Proposes Plan to Slow Growth, Raise Unemployment

Tuesday, 08 June 2010 04:38
The NYT reported on a speech by UK Prime Minister David Cameron in which he insisted on the need for large budget cuts and/or tax increases. The article included no assessment of this agenda from economists. Many prominent economists, such as Nobel Laureates Paul Krugman and Joe Stiglitz, have argued that deficit reduction in the near future will lead to higher unemployment and slower growth. Unlike the vast majority of proponents of fiscal austerity, these economists were able to see the $8 trillion housing bubble that wrecked the U.S. economy.
Comments (2)Add Comment
written by izzatzo, June 08, 2010 7:37
There's supply siders and there's supply siders. Traditional supply siders kept saying reduce taxes and the result will be more government revenue, and they were wrong except where marginal tax rates were very high.

Along come the transformed, new generation of "supply siders" like Dean Baker, Paul Krugman and Joe Stiglitz who say effectively the same thing for a deep recession from the demand side. Don't increase taxes, if you do, government revenue will just go down more, not up. If anything, reduce taxes to increase spending, including deficit spending.

At full employment, traditional supply siders treat reduced taxes as a positive sum game that supposedly generates positive net output by pushing out the real supply curve of all resources. But in a deep recession, some of them reverse position and insist on raising taxes to reduce the deficit, a zero sum outcome that flatly contradicts their position at full employment, as if the real supply curve below full employment is somehow static and can't move unless the deficit is reduced.

This condition is known as Deficthawkititus and can be fatal unless treated in time with regular doses of a drug discovered in the first half of the 20th century, known in its orignal brand name form as Keynesiancillin, however it does have severe side effects on traditional supply siders.
Pumping up the bubble
written by nassim sabba, June 08, 2010 10:19
Is there any study that discusses the effect of the housing bubble on the top of the heap, it seems that this event has sapped the money from anyone below the 90 percentile income level and gushed it upwards.
So, to think "they couldn't see the bubble" may be wrong. They saw it and drooled, and kept pumping it up, knowing that the fallout will land in their pockets. That was the best way to drain the lower level people of their stinking savings.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.