Accounting is so inflexible

Paul Krugman points out why if some people pay down their debt by spending less than their income, others must spend more than their income to prevent the world’s economy from declining.  It’s a simple accounting identity: “for the world as a whole, spending = income“.  If the second group doesn’t increase their spending accordingly, aggregate income drops until the identity is satisfied.  Krugman’s Monday column expands on this.

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