Monday, June 13, 2011

Did Hell just Freeze Over or Something?

Larry Summers does a facepalm on the supply-sider chorus of stupid and joins the Rebel Alliance to call for a fix to the demand-side problem (paywall):
A sick economy constrained by demand works very differently from a normal one. Measures that usually promote growth and job creation can have little effect, or backfire. When demand is constraining an economy, there is little to be gained from increasing potential supply. In a recession, if more people seek to borrow less or save more there is reduced demand, hence fewer jobs. Training programmes or measures to increase work incentives for those with high and low incomes may affect who gets the jobs, but in a demand-constrained economy will not affect the total number of jobs. Measures that increase productivity and efficiency, if they do not also translate into increased demand, may actually reduce the number of people working as the level of total output remains demand-constrained.
Krugsandra's been saying this for a year. It's the demand-side, stupid.

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