Earlier this year author Amity Shlaes, who is a conservative and not a Keynesian, was a member of the chorus of market absolutists and conservative economists who opposed the U.S. government's fiscal stimulus package, on philosophical grounds: government spending doesn't stimulate the economy. (Shlaes should talk to automakers based in the U.S. about that one, particularly amid the 'cash for clunkers' fiscal stimulus plan.)
A metaphysical belief... in markets
The correct thing to do, the market absolutists argue, is to let the market and the economy run its course, and if 20% unemployment results and/or another Great Depression occurs, so be it. That's the market: the smart, strong, and efficient win; and those who don't meet the bar, well, you lose.
Shlaes is particularly committed to this camp, in that she argued, in her book, "The Forgotten Man: A New History of the Great Depression," that New Deal government spending did not improve economic conditions and actually prolonged the Great Depression. World War II ended the Great Depression, she argues (someone should remind Shlaes that it was massive government spending that prepared and armed the U.S. economy to fight and win World War II).
Well now that the U.S. economy appears to be stabilizing, with signs of recovery appearing, stemming from both government spending and other sources, what's Shlaes saying?
Shlaes told Bloomberg Radio Tuesday, "Well of course fiscal stimulus leads to some economic growth..."
Whoa!!! Hold on a minute! Talk about reversals and contradictions. Shlaes tried to couch her remarks by arguing that a private sector-based recovery would achieve more growth, but that's cop-out of the very worst sort, and it doesn't support her thesis. It's an old trick that analysts use: when you're correct, who talk about your theory. But when you're theory is wrong, you raise the bar, or elevate the standard for success.
During the depth of the recession, when fiscal stimulus was passed, the argument was 'government spending doesn't stimulate the economy' and won't end the recession.
Now that government spending is stimulating the economy, the argument is 'government spending doesn't stimulate the economy as much as the private sector.'
That's a double standard, and it's also a philosophically weak tactic, to say the least, and it undermines one's analytical credibility.
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Reader Comments (Page 1 of 1)
8-04-2009 @ 5:49PM
rabbi chaim moshe bergstein said...
according to this author massive government spending is good for the economy-there is no reason to balance the checkbook-just spend!sure if you were out of work that if
someone gave you 100$ it would help your hunger,however,unless the check has a job with it this person will continue to be dependent.a job may not pay as well but will give the person the independence and personal dignity needed to succeed.
same with the economy- a stimulus does not create permanent jobs-entrepreneurs do.
8-26-2009 @ 9:10AM
Philip Crawford said...
Apparently you don't understand the concept of "the economy". The economy is more than one firm and more than an industry. Just because we've borrowed money to give to an industry, it doesn't mean our overall economy is better off.
We've simply pulled ahead consumption. Which is what the US consumers have been doing for years.
We could have the government go around and destroy computers/cars/homes/milk (you pick). The effect of that would cause increased spending for replacements. By your definition that would be effective economic stimulation simply because those industries have an increase in sales.
Please.
9-08-2009 @ 6:28PM
tbear3420 said...
When speculating whether or not the trillions of dollars lent to failing banks and corrupt CEO's is going to actually benefit America's economy, its result is as i said, pure speculation. Short term satisfaction is reserved for losers who have a narrow point of view and are trapped inside their own box of greed and ego. Short term satisfaction leads to poor judgment and improper decisions that lead to long term disappointment and economic loss. With the Federal Reserve running out of ink and paper on a daily basis, the once mass power of the pegged American dollar is becoming weaker and hyperinflation could become a real issue that we as young Americans will have to deal with in our lifetime.
Cheers!
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