Perhaps the Gulf Stream Is to Blame

by Don Boudreaux on October 24, 2010

in Budget Issues, Debt and Deficits, Myths and Fallacies, Stimulus

Here’s a letter to the New York Times:

Paul Krugman foresees dire economic times ahead for the British if their government proceeds with its plans to cut its budget (“British Fashion Victims,” Oct. 22).  These cuts of some $131 billion (spread out over the course of several years) amount to 6.0% of the U.K.’s 2010 GDP.

It is, therefore, curious that Mr. Krugman is forever arguing that U.S. stimulus spending is far too small a portion of U.S. GDP to have any significant impact on the American economy.  After all, Pres. Obama’s $862 billion stimulus package alone amounts to 5.9% of 2010 U.S. GDP.  (If we include also Pres. Bush’s somewhat more ‘modest’ stimulus package, stimulus spending in the U.S. during this recession is now at 7.5 percent of 2010 U.S. GDP.)

How can it be that a government-spending cut in one country will cause grievous economic harm while a nearly identically proportioned government-spending increase in another country will yield only meager benefits?

Sincerely,
Donald J. Boudreaux

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