Fairy Dust

Cash Reserve

The story the “cut-now-and-grow” lobby wants to tell depends not on arithmetic, but on what Krugman calls the confidence fairy (she’s good) and the crowding-out troll (he’s bad). In a tight budget environment like today’s, politicians love the fairy because she provides free stimulus. And since she’s a fantasy, you can attribute anything you want to her: “confidence in the markets depends on [your favorite budget cut here]!!”

Then there’s the notion that high public spending levels are crowding out private borrowing. Again, not a plausible story with excess capacity, the Fed funds rate at zero, and companies sitting on cash that they could invest with if they saw good reasons to do so.

Steve Benen

Similar to this are the promotions advocating that the stimulus failed, when, quite very possibly, the stimulus was too small. Sometime soon a hedge fund manager or Wall Street domo will point out in public that the recovery can be wrecked by contracting the public sector.

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