Advancing a Free Society

Finally, some evidence from Krugman

Thursday, September 16, 2010

Paul Krugman (HT: Brad Delong, who cheers Krugman on) has been beating the drum for more government spending for a long time. And now he finally has the evidence that proves his point. The problem facing our economy isn’t regime uncertainty or the dysfunctional housing market or the financial sector or government, generally. Nope. It’s aggregate demand, the Achilles heel of capitalism:

I’ve said this before, but Catherine Rampell has a very nice chart making the point: if you ask businesses — as opposed to their lobbyists — what their problem is, you find no hint of the stories the usual suspects are telling you about government interference, political uncertainty, etc.. Businesses aren’t hiring because of poor sales, period, end of story:

He concludes, like the good Keynesian that he is:

“And the best thing government could do to help business would be to spend more, increasing demand. The fact that it’s not going to happen doesn’t change the fact that it’s the simple truth.”

[End of Krugman quote]

Ah, the simple truth. The chart shows the answer to a survey question asked of small businesses (I think businesses with fewer than 50 employees). The survey asks small businesses to list their biggest problem. (The chart says “Most Important Problem” but in the report of the recent data at least, it’s worded as “Biggest Problem.) And in August of 2010, the most common answer for the biggest problem is “Sales.”

Continue reading Russ Roberts at Cafe Hayek…