Posts tagged ‘Big Government’

The Big Government Trap: Does Stimulus Require Government Spending to Continuously Rise?

There has been a lot of back and forth over the last few years about "austerity".  I have wondered how government spending levels over the last few years that dwarf any peacetime levels in history could be called "austerity", but that is exactly what folks like Paul Krugman have been doing.   Apparently, the new theory is that the level of spending is irrelevant to stimulus, and only the first derivative matters.  In other words, high spending is not stimulative unless it is also increasing year by year.   Kevin Drum provides an explanation of this position:

Austerity is all about the trajectory of government spending, and this is what it looks like. You can argue about whether flat spending represents austerity, but a sustained decline counts in anyone's book. The story here is simple: for a little while, in 2009 and 2010, stimulus spending partially offset state and local cuts, but by the end of 2010 the stimulus had run its course. From then on, the drop in government expenditures was steady and significant. It was also unprecedented. If you run this chart back for 50 years you'll never see anything like it. In all previous recessions and their aftermaths, government spending rose.


So, by this theory of stimulus, the fact that we spent substantially more money in 2010-2014 than in pre-recession years (and are still spending more money) turns out not to be stimulative.  The only way government can stimulate the economy is to increase year-over-year per capital real spending every single year.

I will leave macro theory (of which I am increasingly skeptical) to the Phd's.  In this case however, Drum's narrative is undermined by his own chart he published a few weeks ago:


In his recent austerity article quoted above, he describes a sluggish recovery with a step-change in 2014 only after "austerity" ends.  But his chart from a few weeks earlier shows a steady recovery from 2010-2014, right through his "austerity" period.  In fact, during the Bush recovery he derides, we actually did do exactly what he thinks is stimulative, ie increase government spending per capita steadily year by year.  How do we know this?  From another Drum chart, this one from last year.  I changed the colors (described in this article) and compared his two charts:

click to enlarge


By Drum's austerity theory, the Bush spending was stimulative but the Obama spending was austerity.  But the chart on the right sure makes it look like the Obama recovery is stronger than the Bush recovery.


A better explanation of the data is that a recession driven by the highly-leveraged mis-allocation of too much capital to home real estate was made worse in 2008-2009 by a massive increase in government spending, which is almost by definition a further mis-allocation of capital (government is taking money from where the private sector thinks it should be invested and moves it to where politicians think it should be spent).  The economy has recovered as that increase in government spending has been unwound.

Lobbying "Reform"

Via Instapundit, Mark Tapscott reports that Nancy Pelosi is cooking up a lobbying "reform" bill that  will be to lobbying what McCain-Feingold was to elections:  A figleaf labelled "reform" behind which politicians can hide while in effect making it more difficult for ordinary citizens to exercise their free speech.

Incoming House Speaker Nancy Pelosi has cooked up with Public
Citizen's Joan Claybrook a "lobbying reform" that actually protects
rich special interests and activists millionaires while clamping new
shackles on citizens' First Amendment rights to petition Congress and
speak their minds....

is bad news for the First Amendment and for preserving the kind of
healthy, open debate that is essential to holding politicians,
bureaucrats and special interests to account for their conduct of the
public business.

The key provision of the 2006 bill was its
redefinition of grassroots lobbying to include small citizens groups
whose messages about Congress and public policy issues are directed
toward the general public, according to attorneys for the Free Speech

All informational and educational materials produced
by such groups would have to be registered and reported on a quarterly
basis. Failure to report would result in severe civil penalties (likely
followed soon by criminal penalties as well).

In addition, the
2006 bill created a new statutory category of First Amendment activity
to be regulated by Congress. Known as "grassroots lobbying firms,"
these groups would be required to register with Congress and be subject
to penalties whenever they are paid $50,000 or more to communicate with
the general public during any three-month period.

In other words,
for the first time in American history, potentially millions of
concerned citizens involved in grassroots lobbying and representing
viewpoints from across the entire political spectrum would have to
register with Congress in order to exercise their First Amendment

There is even more bad news here, though, because the
Pelosi-Claybrook proposal includes loopholes big enough to protect Big
Labor, Big Corporations and Big Nonprofits, as well as guys with Big
Wallets like George Soros. Big Government, you see, always takes care
of its big friends.

The Pelosi-Claybrook proposal builds on the
restrictions on free speech created by campaign finance reform measures
like McCain-Feingold that bar criticism of congressional incumbents for
30 days prior to a primary and 60 days before a general election.

It should be no surprise that Common Cause, whose main cause is to champion unlimited government power, is behind both bills.