[quote=SK in CV][quote=livinincali][quote=SK in CV]
You’re closer to correct, but that’s not what I was responding to. He said spending to get out of debt. Keynes suggested just the opposite. There’s a big difference between getting out of debt and getting out of a recession. Keynesian ecomomics would lead to cutting spending, increasing taxes and deleveraging in times of economic growth.[/quote]
This is certainly true and another one of the primary excuses that is used to explain why the stimulus isn’t working as intended. If we admit that our government can’t follow this part of the Keynes economic theory why do we prescribe Keynes solutions to recessions.
Stimulus is politically popular and it does give the illusion of working over the short term, but when the government is deficit spending 1.5 trillion a year to get 420 billion (14 trillion economy * 3% growth) in growth you’re going to have a problem. Stimulus would only be worth while if the stimulus spending is less than the growth in GDP. There’s only one small window from 1997-2001 in the past 30 years where GDP grew faster than Government debt and that was during the internet boom.[/quote]
I don’t think the first part of your comment makes much sense. You’re essentially arguing that if we didn’t follow a particular economic model when the economy was decent, we shouldn’t try it now. Even though the model we did follow, didn’t work.
Beyond that, you’re mixing up a couple things. The purpose of stimulus would be to increase GDP, not decrease spending or debt. Ideally, that stimulus will increase GDP greater than the amount of the stimulus. The comparison to debt or annual deficits is false. The two are not directly related.[/quote]
All government deficit spending is stimulus. It has to be by definition because government borrowing and spending creates a demand that wouldn’t otherwise be there. Are you arguing that only some government deficit spending is stimulus?
As for the first point we’ve been trying the Keynesian stimulus spending solution for decades and every time debt grows faster than GDP. It successfully kicked the can down the road but makes the future problem bigger and bigger. I suggest we try the solution that was used in the 1920-1921 depression. Cut spending, let the bad debt fail, prosecute those criminally responsible, and rebuild the system. Yes, there will be significantly bad short term consequences for all the actors in the economy (and we’ll realize that many entitlement promises can’t be kept) but it’s far better to do it under you own terms than letting market forces dictate.
