Saturday, July 11, 2015
How To Make The US Economy More Like That Of Greece
Republican politicians accuse the Fed of debasing the dollar, and they claim that rising government debt will turn the US into Greece. Paul Krugman explains why Republican economic policies are precisely the kind of policies that have depressed the Greek economy. Sometimes it is necessary to cut government spending. Canada did that in the 1990's but it coupled that with loose monetary policy. That caused its currency to depreciate. That made its exports less costly to importers. Cutting government spending in Greece has only made its debt to GDP ratio worse because it cannot use monetary policy to reduce the value of the euro and increase its exports. Consequently, GDP has dropped faster than government debt. If the GOP had its way, the Fed would not be able to use monetary policy or fiscal policy to moderate recessions. Moreover, all of the predictions that they made about rising inflation and a debased dollar have turned out to be wrong. If they ran the economy we might indeed look more like Greece.