For the last 5 years, some people (Republicans and, sad to say, President Obama at times) have been telling us that we need to make cuts to the US budget. If not, there would be inflation and the economy would suffer. Here’s Paul Krugman:
It’s pretty clear, however, that the blockbuster paper of the conference will be one that focuses on the truly ugly: the evidence that by tolerating high unemployment we have inflicted huge damage on our long-run prospects.
How so? According to the paper (with the unassuming title “Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy”), our seemingly endless slump has done long-term damage through multiple channels. The long-term unemployed eventually come to be seen as unemployable; business investment lags thanks to weak sales; new businesses don’t get started; and existing businesses skimp on research and development.
What’s more, the authors — one of whom is the Federal Reserve Board’s director of research and statistics, so we’re not talking about obscure academics — put a number to these effects, and it’s terrifying. They suggest that economic weakness has already reduced America’s economic potential by around 7 percent, which means that it makes us poorer to the tune of more than $1 trillion a year. And we’re not talking about just one year’s losses, we’re talking about long-term damage: $1 trillion a year for multiple years.
Kevin Drum makes this even more specific:
In other words, even running at full tilt our economy’s productive capacity is now about 7 percent below its pre-crisis trend level—which represents a loss of about $3,000 for every man, woman, and child in the country. This is the price we’re paying for four years of austerity mania.
To be fair, if things worked the same as they have, most of the extra money would have gone to the rich:
But since the recession officially ended in June 2009, the top 1 percent have enjoyed the benefits of rising corporate profits and stock prices: 95 percent of the income gains reported since 2009 have gone to the top 1 percent.
In any case all those people screaming for budget cuts have really hurt the US economy.