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When dogmas collide

Posted By Russ Roberts On July 8, 2011 @ 1:29 pm In Stimulus | Comments Disabled

Ezra Klein writes on Twitter [1]:

The job numbers should change the debt ceiling debate. Economy needs more support now, austerity should wait. They won’t.

Funny, I see things in a different light. Seems to me that there is no evidence that having the federal government borrow lots of money and spending it has been very effective. Certainly, the predictions of the effect of that spending by its proponents have been very inaccurate.

I’m with the Hayek character from the rap video [2]:

We brought out the shovels and we’re still in a ditch…
And still digging. don’t you think that it’s time for a switch…
From that hair of the dog. Friend, the party is over.
The long run is here. It’s time to get sober!

Having the government return to the level of spending of say, 2007, isn’t austerity. It doesn’t even imply that there will be a reduction in overall spending. My dogma says that when government spending grows dramatically via borrowing and the money is spent on mostly unproductive stuff, that actually discourages consumer spending. Reducing government spending might encourage confidence in the future and encourage employers to hire more workers. It happened in 1945. That confirms my belief in my dogma. I wonder what the Keynesians are holding onto to confirm their worldview.

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