I agree with Paul Krugman that the deal to raise the debt ceiling is a disaster.
But it's time to start thinking beyond that debate. The economy is rapidly contracting. Every indicator is flashing red alert.
After this week's debt ceiling deal, there's no way the government is going to be able to employ its spending power to stimulate the economy. Republicans just won't allow the Obama administration to try a Keynesian spending fix.
So what's the next best option? Obviously a tax cut would help. Even if Americans just used the extra money from the tax cut to deleverage, we'd at least be helping the economy move out of the balance sheet recession faster.
Would the tax cut require deficit spending and more borrowing? Almost certainly. But look at the bond market. It's practically begging for permission to give the government more money. Why not slash taxes and let markets put money into government savings accounts until things look a little better on the investment front.
The main barrier to tax cuts, as I see it, is not the budget deficit.
Republicans are willing to accept deficits caused by tax cuts. The barrier is Democrats, who think that tax cuts are unfair because they help the wealthy disproportionately.
Someone like Krugman would be an ideal candidate to explain that we can argue about fairness later. Now is the time for stimulative action. Time for a tax cut.
So, come on, Paul. How about it?
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