Krugman wrote a column the other day about how state governments are cutting back spending, at at a time that we need them to keep spending, and even increase spending.
It’s true that the economy is currently shrinking. But that’s the result of a slump in private spending. It makes no sense to add to the problem by cutting public spending, too.It's the same problem we see with private spending, spending by you and me. It makes sense that you're cutting back your spending, just in case the economy REALLY goes south. But the thing that just might send the economy REALLY south is all of us collectively cutting back our spending. Thus, the precaution leads to the very problem. Ironically, Bush's then-ridiculous advice last year to "spend money" was spot on. But how can you spend when you're afraid that your employer won't spend, but will instead cut back themselves and fire you? It's all one big prisoner's dilemma (or, tragedy of the commons).
[A] dilemma in which multiple individuals acting independently in their own self-interest can ultimately destroy a shared resource even where it is clear that it is not in anyone's long term interest for this to happen.In other words, it makes sense for YOU personally to stop spending and save your money, but if we all do it, we're screwed. If we all spend, perhaps we're not screwed (and that's part of the problem - there is no guarantee that spending wildly will save any of incomes).
