Krugman: Beware of ‘The Confidence Fairy’

By Kate McCarthy

Jul 6, 2010 8:56am

A senior administration official who supports more stimulus spending argued to me recently that the fact that Congress can’t and won’t pass another big program could actually be a good thing. 

Here’s the explanation: The business community is afraid of more action from Washington now. If that uncertainty and anxiety is lifted, corporate America (which is sitting on piles of cash) will start investing and hiring again.

Paul Krugman’s not buying it. 

“I call this believing in the confidence fairy. You believe that you actually do things that would mean less demand, less spending power, less consumer spending, less actual reason for businesses to invest. But because they think it’s over they will invest. There is no reason to believe that’s true,” Krugman told me.

“If you actually talk to business people for real about why they are not investing they will say ‘well why should we invest? We have factories that are not operating at full capacity, there isn’t a demand for our products. There isn’t a reason to invest now.’ What they need is more, not less from the government.”

Watch the rest here:

–George Stephanopoulos

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