Economics

When Does Deficit Spending Start To Matter?

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Arnold Kling has some interesting observations on deficit spending mania and intellectual hubris in the age of Obama:

at which level of additional government spending would the path of U.S. real GDP be the highest?

(a) $100 billion in spending above the baseline
(b) $1 trillion in spending above the baseline
(c) $100 trillion in spending above the baseline

If you use a constant multiplier [for government spending] of 1.57, the right answer is (c). Yet we know that this is not the right answer. At $100 trillion in additional government spending, the United States would be operating like Zimbabwe, with similar results.

………..

The Obama Administration is being populated with outstanding academics, like Larry Summers and Cass Sunstein. It is not surprising that the academic world is expressing a lot of confidence in giving them huge amounts of power…….Right now, the typical academic cannot imagine Obama's team doing anything stupid. The upper class in Britain felt the same way about its generals in 1916.

Matt Welch on Obama's budget prospects from Reason magazine's January issue.