The New "Spanish Prisoner": Spain Raises Budget Deficit to 8.9% of GDP

Confounded Interest ^ | 05/19/2012 | Anthony B. Sanders

[whitedog57]

The Spanish Prisoner is a confidence trick originating in the late 19th century. The con artist tells “the mark” that a wealthy person is being held captive and that money needs to be raised to release the wealthy person from the jailers. Allegedly, when the prisoner is released, the mark will receive a handsome reward. Needless to say, something always goes wrong with the negotiations and the mark is asked for more and more money until there is nothing left.

Spain, coincidentally, just claimed to find a pile of unpaid bills and needed to raise their budget deficit to 8.9% of GDP from 8.5%. But according to the Spanish government, the revision won’t affect this year’s deficit goal of 5.3 percent of GDP adding that the regions accounted for the change when drafting their budget plans.

“The Spanish Prisoner” is difficult to distinguish from classic Keynes/Hicks-Hansen big government borrow and spend strategies during a recession. I have made the point before that we have NEVER paid down the Federal debt when times improve. The Clinton Administration did pay down the Federal Treasury debt, but simultaneously increase Federal AGENCY debt so that he did not pay down TOTAL debt.

I call advocates of borrow more and spend (stimulus) as the “50% Keynesians.” They LOVE stimulus spending and borrowing money (the first half) but never deliver on the second half (paying down the debt when the economy improves).

[whitedog57]

I like it. This economist makes the analogy between stimulus spending and the con game "The Spanish Prisoner."