If Government Spending Is The Solution, Why Are We In A Recession?

Nobel Laureate Paul Krugman is worried. This morning he expressed fear that somewhere along the way, his vision of crazy government spending will get muddied by a desire for bi-partisanship and that wasteful tax cuts will get thrown into the mix.

Krugman calls tax cuts “giving money away”, though to be fair, Obama’s new $300 billion tax cut is largely about giving money away rather than actually cutting taxes.

But here’s a question for Krugman and the rest of the spenders: If government were the answer to preventing recessions, why are we in a recession in the first place? Government has been on a big spending jag for the past several years. Ted DeHaven at [email protected] offers:

According to U.S. Bureau of Economic Analysis numbers, combined federal, state, and local expenditures in 2000 were an already unhealthy 30% of GDP. Eight years and two recessions later, government spending now sucks up 35% of the nation’s economy and is trending higher. During that time we have witnessed the first $2 trillion federal budget and the first $3 trillion dollar budget. With all the money federal, state, and local governments have been spending shouldn’t we be experiencing a boom?

Spending defenders might say that this spending wasn’t targeted towards areas like infrastructure, and instead went to expanding government bureaucracy. Alas, Krugman says this is exactly the point:

What gets lost in such discussions is the key argument for economic stimulus — namely, that under current conditions, a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle, and put both to work producing something useful.

See, he’s not so much concerned with what those Americans would be doing — whether they’re building bridges or pushing papers — he’s mainly concerned that they’re employed, rather than unemployed.

It’d be nice if Krugman chimed in on the Buy American clause question. A stand in favour of only spending the stimulus money on American-made goods would confirm that the purpose is not to make a great, lasting investment, but to find something to do with idle hands.

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