Bottom line, its the recession and its effects.
Friday, December 24, 2010
Government Spending
We've often heard folks in government and the media rail against the outlandish government spending since 2008 and therefore a huge rise in government's size and role. Has the size of our government really grown considerably? Paul Krugman demurs in this enlightening post. It's got pretty charts!
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Ahh, Paul Krugman...a stalwart of Keynesian Economics. Nice article if only he had left out the word "role".
ReplyDelete"...there hasn’t been any surge in the size and role of government."
Although the rate of growth of the government may not be significantly different, one could reasonably argue against (if one were so inclined) recent expansion of its "role", ie, the wisdom or necessity of bailing-out or assuming significant ownership of various corporate entities (AIG, various banks, auto industry, etc).
Additionally, although the "surge in the size" of the govt may not be significant, once again, it's not unreasonable to suggest (if one were so inclined) that the absolute size of the govt is too big. And none of this has anything to do with the fact that our national debt is $14T and the deficit unsustainable, yet the current (as well as the most recent past) administration continues to spend. Decreased revenues from the recession don't excuse the irresponsible behavior. If we only spent what we had and had a surplus, then we would be in much better position to absorb the negative impact of a recession. But we don't, and we're not...regardless of Mr. Krugman's lack of concern for spendful practices and policies.
Ric
I like the blog Bartee...gives me somewhere to "ramble" as well.
Thanks for reading Ric. It is nothing more than rambling on my part.
ReplyDeleteI certainly don't need to defend Mr. Krugman. But he has plenty of concern for wasteful spending practices. He was for letting the bush-taxcuts expire for the upper income folks. He is for reducing/eliminating our presence in Iraq/Afghanistan. Keynesian economics dictates that you stimulate the economy by either reducing interest rates or by Government investing in infrastructure. Unfortunately, we are at the zero lower bound as far as interest rates. So, only one option is viable. Counter-intuitive as it may sound, when the economy is down and unemployment is high, the Government has to borrow regardless of debt. If unemployment was low, I don't think Mr. Krugman would want the Government to borrow either. Granted it puts us in a larger debt hole. But we either avoid spiraling unemployment/depression or we recover. I believe, there are areas where we can and should cut spending but not at the expense of stimulating the economy. As for bailing out certain corporate entities, I am against it as well. But if those entities are paying the money back and it keeps us from adding a ton of people to the unemployment line (auto industry) or prevents Global financial chaos (financial industry) then I am for it. BTW, neither of those is an expansion on the "role" of Government, at least not as Keynes would have wanted it. It was mostly a loan and that's it. What we want is for the Govt to establish effective monetary policy that would prevent such 'irresponsible behavior' as you put it. But alas, even there we seem to fall short since Congress is run by special interests.
I guess it's a matter of what you consider "wasteful". There are actually economists on the other side of the spectrum (Friedman Chicago school, or Hayek Austrian school) who think throwing good money after bad, continuing to print money, flooding the financial industry with cheap funds, all while continuing to say that 'we'll get it all under control when the economy turns around' is insanity and not supported by any data. Unfortunately, both sides of this economic spectrum tend to quote and believe the numbers that they prefer to support their particular school of thought. I listened to another professed Keynesian economist (Steve Fazzari) the other day flat out concede that there is no hard evidence to support that the Keynesian principle of fiscal stimulation (whether via tax cuts or capital infusion) has had a positive affect on the US economy, but rather that he gets the "impression" that things are better...interesting. Krugman is very famous right now and gets much attention by the media. I guess this is his 15 minutes.
ReplyDeleteAnd I've really had enough with fear tactics from both sides. Borrow another $700B or face a second Great Depression. Doomsday. Armeggedon. It's always easy for Krugman to say that he would promote fiscal frugality when things are different. When the bond rating agencies down-grade US Tbills, I wonder who we'll blame then...the rating agencies, the markets??
Neither of those stated roles are an expansion per Keynesian philosophy, but hard to argue that our fed govt serving as the "safety net" for industry is consistent with the American vision for govt, not Keynesian. That's an expanded role in which I'm not interested (although Krugman may have no issue with it). And for those who think the 'safety-net' argument doesn't really effect economic, fiscal, or investment behavior...Moody's has acknowledged in writing that the they incorporate the govt safety net into certain valuation of corporate offerings, when the govt is unlikely to permit certain entities to fail...see if that promotes more cavalier and irresponsible behavior.
Continued tax cuts...insanity. Continuing to print and borrow hundreds of billions...further insanity. And yes, I agree with your last point, ultimately this is mostly a result of the corporate and special interests that control our political system...very problematic.
On big issues and their merits, I can be cynical about every side of the issue or I can take a side. I chose a side because it speaks to me. Fundamentally, a healthy economy requires people willing/able to buy and people willing/able to sell. Currently, I believe we have the latter but not the former. We can either 'generate' the former or we can let the economy 'correct' itself. I think I know what the long-term unemployed would want.
ReplyDeleteHard decisions. No one seems to want to make them.
ReplyDeleteOn a more optimistic note, I actually think Obama has it right with his emphasis on entrepreneurship, innovation, investment, etc in new technologies and industries (read renewable energy). I can only hope the Republicans don't remain obstructionist about this as well...on to the next topic!