.Originally Posted by wufwugy
This isn't true. There is nothing inherently beneficial to spending. It does signal where supply investment is best allocated, but that is different than what you're saying. Disregarding that this signaling is bad when it comes from centralized forces, spending increases costs because it reduces supply. When government throws money at consumption, it is really just shifting costs, usually upon the fiscally responsible, like savers. Additionally, Krugman loves talking about the fiscal multiplier (or at least used to), but it has no evidence to support it.
Evidence:
http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf
Besides, if it was true, we'd all be billionaires since it would mean the more we spend the more our incomes increasingly outpace our spending.
If they use it to pay down debt, it means the reason they aren't spending is because of their indebtedness. As far as I can tell, the drag of household debt on the economy was denied by zero economists until Krugman and co. started fighting for welfare programs. Even then, Krugman and co. never denied it, but instead just stopped mentioning it since it undermined their position on fiscal policy.
If you want to get even deeper, temporary stimulus isn't even a thing. Markets are not fooled by the temporary. If the government says it's going to spend more now but keep things "balanced" by spending less later, the markets account for this and end up not budging. If you follow central banks, you see this happen in real time all the time, but a fiscal example is the census employment in 2010. There was a significant expansion in employment just to take that census, but the markets knew the jobs were temporary and would disappear, so it didn't affect growth.
Reply With Quote
