Saturday, April 09, 2011

This picture is amazing to me. It really makes a very strong case for the budget resolution from the House of Representatives.

I recall both President Bush and President Obama arguing that the increased spending was a temporary measure required in a time of economic crisis. This is Keynesian economics. In the time of reduced aggregate demand, the government can temporarily increase its spending to restore aggregate demand until consumer spending comes back to normal. I dont personally grok this argument. There are a lot of economists who disagree with it. Strongly. They suggest, instead, that increasing spending will simply prolong the problem, and they point to data that shows the great depression didnt actually end until after WWII, some 15 years (or so) after it started.

But in this case, it matters little. The spending measures were made into law. And we cant go back and change that.

Heres the thing, though. If you buy the Keynesian argument that the spending increases were necessary and temporary, then shouldnt we acknowledge the temporary part? You can argue that they may still be necessary. But if, as the administration proposes, the spending increases stay in place until 2021 (and beyond) on the idea that theyre still necessary that far out, doesnt that give credence to the original criticism of the spending increases? That theyve prolonged, and will continue to prolong the problem?

When I look at this chart, I can see no justification at all for continuing spending at these levels. If you believe these spending increases continue to be necessary, then how can you justify that theyve helped. If they are no longer necessary, then how can you justify keeping them?

What possible reason could we have for not returning (eventually) to the spending levels that we had prior to the crisis?