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Friday, January 23, 2009

The return of deficit spending

In last week’s Maclean’s, Andrew Coyne marvelled at the return of deficit spending as an acceptable government policy.

He asked why deficit spending has returned to vogue, “not only by the political class, for whom its appeal is obvious, but by much of the economics profession? How, when so little fresh evidence has been offered of its effectiveness, and so much of the original critique that first discredited it remains intact?”

I myself marvel at this. It was not long ago that an economist calling for deficits would have been considered a dinosaur, and a politician calling for a deficit would have been committing political suicide. Now suddenly all four of our Parliamentary parties are calling for a deficit. What is worse is that there is not even the hint of a discussion of what can be cut. I don’t see a parliament that has the will to fight a deficit and combat the debt.

The argument against deficit spending is best described in this video.

This simple and clear logic has never been successfully dismantled. It has simply been ignored. Why has it been ignored? Because of a lie that we have been telling ourselves for generations; the lie that government is entrusted to insure our prosperity.

Government does not have the ability to create wealth. All that government can do is set the conditions that encourage wealth to be created. Taking capital out of the economy and redistributing that capital is not the way to set those conditions. Instead the government should look at ways to decrease barriers to doing business. Perhaps create an employment tax holiday or reconsider some regulations. That will do far more to help the economy in a meaningful way.

Posted by Hugh MacIntyre on January 23, 2009 | Permalink


Huge, your last paragraph says it all and extremely well.

Posted by: Alain | 2009-01-23 2:14:00 PM

This posting disappeared after I put in the following comment?

I think the yupy-fication of the business class has been largely responsible for this phenomenon. The business schools have been pumping out a generation or two of unprincipled spread sheet jockeys, (c/w clean fingernails and fast-tracked to the boardrooms) fully comfortable with all forms of rent seeking, in other words, fair weather capitalists. If near term gains are available through a return to deficit financing, who cares, we're taught to only worry about the next quarter! Government money, even if stolen from the unborn is never seen as loot but "competitive advantage".

Posted by: John Chittick | 2009-01-23 4:53:21 PM

Excellent Video.
Government Spending....Stimulus Package...
Just code words for Inflation, Control and Wealth Redistribution (theft).

Posted by: JC | 2009-01-23 5:05:34 PM

Great comments. Here is letter to the Editor by Don Boudreaux. http://www.businessandmedia.org/articles/2009/20090119110013.aspx

I especially like the comment "To be shocked by this reality is like being shocked that sex happens in whorehouses."

Harper is afraid to do the right thing. I presume he thinks it better to make incrimental change as the governing party than as the opposition. One thing for sure, if he did what he knows is right, he would lose the next election. However, by practicing Keynesian economics, he perpetuates the belief that it actually works.

Posted by: TM | 2009-01-23 9:00:43 PM

If Harper did fight the next election by promoting smart economics he would lose because the media would not cover the truth. They would ignore the truth and promote robbing Peter to pay Paul.

Posted by: DML | 2009-01-23 11:15:40 PM

"A trillion used to be an astronomical number. Now its an economical number."

Posted by: Grant Brown | 2009-01-24 2:01:31 AM

It is amazing how long I have spun my wheels getting into silly arguments against Keynsians who invoke "He was misrepresented. You don't understand the multiplier effect", ect...

It was so simple and this guy hit it. Keynes only talks about paying Paul - Keynsians never mention Peter.

Posted by: Faramir | 2009-01-25 2:32:09 AM

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