What do you call someone who wants more government spending? A liberal economist

This time it’s different say the liberal economists who want to… wait for it… have the government borrow more money.

What if borrowing money made you so much richer over the long-term that it paid for itself? It’s not crazy. Millions of families make such a decision every year when they take on debt to pay for school. Indeed, investing in yourself is a bet that often pays off. But can the same be true for an entire country?

Brad DeLong and Larry Summers say yes. In a provocative new paper, they argue that when the economy is depressed like today, government spending can be a free lunch. It can pay for itself.

At the U.S. government level, such a claim requires either massive inflation, economic alchemy, or the suspension of one’s belief in reality. Economic alchemy is said to be the “multiplier,” which can turn $1 trillion of additive government spending into (for example) $1.5 trillion in increased GDP.  It didn’t work with the Administration’s stimulus program, but this time it’s different.

The question I ask if this: if there is such a thing as an economic multiplier for deficit spending, when the money is paid back, does is become an economic divisor? The economic divisor theory makes sense to me unless a) the principal never gets repaid, b) inflation destroys the value of the principal enough to “pay for itself,”, or c) both a and b.

The summary:

The Cliff Notes version of all of this is that a fiscal multiplier greater than one is not a unicorn. It’s more like a black swan. It exists. It’s just rare. And this looks like one of those rare times. Taken together with our historically low rates, now seems like a great time to make some investments in ourselves.

So there we are: this time it’s different. But in some ways, the song remains the same. How so? The meaning of words change (more economic alchemy?) whereas borrowing and deficit spending are redefined to mean “investment.”

Let me try and unpack the basic issue as I see it and engage from a totally different direction. Man is the only creature who can lie to himself; liberal economists come from the pool of humanity; ergo, liberal economists can—and do—lie to themselves.

If you repeat an economic lie long enough, does it become a truth? Like the untruthful promises of free lunch, free education, free money, or free healthcare?

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About Professor Mockumental

I enjoy almost all forms of parody, buffoonery, and general high-jinks. Satire has shown itself to be an essential societal need; I therefore humbly offer my services in such a manner. I enjoy mocking the usual suspects at the New York Times (Charles Blows, Moron Dowd, and the earth is flat guy) and Washington Post (Dana Milkbag, E.D. Dijon, and David Ignoramus). There are many others as well, but sadly, there are always too many targets and too little time.

Posted on March 27, 2012, in Uncategorized and tagged , , . Bookmark the permalink. Leave a comment.

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