If you read economic analysis from folks like Paul Krugman or other big government liberals, you would have concluded long ago that what the American economy needed was more spending by the federal government. Standard Keynesian economic theory says that each dollar spent by the government results in an increase in economic activity of a much larger magnitude. This extra growth, the so-called Keynesian multiplier, adds to aggregate demand and pushed the economy forward, or so the theory goes. Under this view, the best kind of government spending is deficit spending because no money is taken from consumers through taxation, so the multiplier effects of the spending are not reduced in any way.
This analysis has been the accepted wisdom for a large part of the economics community for the last three quarters of a century. We now know, however, that it really does not seem to work. In 2009, 2010 and 2011, the country splurged on the largest increase in government spending and the largest deficits in American history. Indeed, the USA had never seen anything like that spending spree in the past. Despite that spending, the economy limped along and every movement towards increased growth collapsed back into a near recession. Starting in 2011, the Republicans in Congress managed to put a lid on government spending so that we went through three years during which spending actually declined and the size of the deficits were cut by about two-thirds. Obama and the Democrats opposed these spending limitations and deficit reduction measures on a non-stop basis, but they still were achieved by the GOP. Right now, the size of the deficit compared to GDP is back to levels that have been "normal" over the last half century. With the lid on spending increases and the reduced deficits, the liberal economists (like Mr. Krugman) have been telling us that America will never again achieve economic growth.
During the last few quarters, the rate of growth of GDP has picked up to levels not seen since prior to the recession in 2008-2009. But government spending is down as a percentage of GDP and the deficit is at the lowest level since Obama took office (although it is still sizeable.) The Keynesians would say that this is an impossible combination, but it is happening. It seems that getting some control over spending and living within our means is perhaps the best way to achieve economic growth.
None of these facts will change the tired arguments put forth by the Keynesian progressive economists. They don't seem to care if their policies work; they still think that America needs to follow them.
Look, the economy could fall back into slow growth or recession in the next year or we could see the start of the first true recovery since the recession. Only time will tell. One thing is certain, however, the liberal Keynesian analysis that calls for increased government spending does not work.
This analysis has been the accepted wisdom for a large part of the economics community for the last three quarters of a century. We now know, however, that it really does not seem to work. In 2009, 2010 and 2011, the country splurged on the largest increase in government spending and the largest deficits in American history. Indeed, the USA had never seen anything like that spending spree in the past. Despite that spending, the economy limped along and every movement towards increased growth collapsed back into a near recession. Starting in 2011, the Republicans in Congress managed to put a lid on government spending so that we went through three years during which spending actually declined and the size of the deficits were cut by about two-thirds. Obama and the Democrats opposed these spending limitations and deficit reduction measures on a non-stop basis, but they still were achieved by the GOP. Right now, the size of the deficit compared to GDP is back to levels that have been "normal" over the last half century. With the lid on spending increases and the reduced deficits, the liberal economists (like Mr. Krugman) have been telling us that America will never again achieve economic growth.
During the last few quarters, the rate of growth of GDP has picked up to levels not seen since prior to the recession in 2008-2009. But government spending is down as a percentage of GDP and the deficit is at the lowest level since Obama took office (although it is still sizeable.) The Keynesians would say that this is an impossible combination, but it is happening. It seems that getting some control over spending and living within our means is perhaps the best way to achieve economic growth.
None of these facts will change the tired arguments put forth by the Keynesian progressive economists. They don't seem to care if their policies work; they still think that America needs to follow them.
Look, the economy could fall back into slow growth or recession in the next year or we could see the start of the first true recovery since the recession. Only time will tell. One thing is certain, however, the liberal Keynesian analysis that calls for increased government spending does not work.
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