Two weeks ago, Republican staff at the Congressional Joint Economic Committee released a report, "Spend Less, Owe Less, Grow the Economy," that argued that slashing government spending and employment in the face of a deeply depressed economy would actually create jobs...The other problem, the Confidence Fairy of which Krugman writes, is the notion that more austerity will lead to increased "confidence" by businesses, who will then start using their record cash reserves to invest in plants, equipment, and new hiring. Except that this is demonstrably untrue, both from history and from reason.
Here's the report's explanation of how layoffs would create jobs: "A smaller government work force increases the available supply of educated, skilled workers for private firms, thus lowering labor costs." Dropping the euphemisms, what this says is that by increasing unemployment, particularly of "educated, skilled workers" — in case you're wondering, that mainly means schoolteachers — we can drive down wages, which would encourage hiring.
There is, if you think about it, an immediate logical problem here: Republicans are saying that job destruction leads to lower wages, which leads to job creation. But won't this job creation lead to higher wages, which leads to job destruction, which leads to ...? I need some aspirin.
Krugman may be getting a headache, but it will take more than aspirin to alleviate the pain the GOP prescription will visit on the vast majority of Americans.
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