Friday, January 28, 2011

Krugman on Ryan's Response to Obama's State of Union Address

Krugman points out that Ryan's understanding of the economic problems in Europe is wrong and that using Europe as an example of what could happen to the US, demonstrates his poor understanding of Europe. Ireland's economic problems were not caused by large budget deficits. The Irish government was forced to bail out its banks when the Irish housing bubble burst. The bail out created the budget deficits, not out of control government spending. In fact, the GOP had viewed Ireland as a model for the US to follow. It linked its economic success, before the banking crisis, to deregulation and business friendly tax policy. England is also a bad example because its budget deficits did not lead to its economic problems. The bursting of the housing bubble and bank bailouts led to its recession and budget deficits. England's austerity program, under the new government, has not stimulated growth so far.

Ryan's plan for reviving the US economy is to cut government spending and taxes. His assumption is that our economic problems are due to a lack of confidence in the business community that could be restored by government austerity. For the GOP, economic problems are always caused by government interfering in the market market mechanism, which left to its own devices, always produces optimum results. His use of Ireland and England to make his point only hurts his argument since it is based upon a faulty understanding of what led to their economic problems.

No comments:

Post a Comment