"Small businesses and families are tightening their belts. Their government should, too." Who said it? That would be President Barack Obama.
"It's time for government to tighten their belts and show the American people that we 'get' it." Who said it? That would be Speaker of the House John Boehner.
After the jump, what I wish President Obama and Speaker Boehner and every other American would learn.
President Obama and Speaker Boehner are politicians, not economists. They are playing to American voters, very few of whom are economists, either. All of them could learn something from a real economist, one who literally wrote the textbook on economics (and won a Nobel Prize, to boot). Paul Krugman has been making this point since the onset of the Great Recession over four years ago, but policy makers just don't seem to have learned anything.
Get that? An economy is not like a household. The next time some politician says that the rest of us are tightening our belts so government should too, be very afraid. He doesn't know what he's talking about.[A]n economy is not like a household. A family can decide to spend less and try to earn more. But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall -- and unemployment will soar.
Source: Paul Krugman.