[Mase]

And don’t think for a second that policymakers or academics wishing to become “policy entrepreneurs” in the mold of John Maynard Keynes have learned any humility or nuance.............two of those UMass economists, Robert Pollin and Michael Ash, make this categorical and unsubstantiated claim: “Government deficit spending, pursued judiciously, remains the single most effective tool we have to fight against mass unemployment caused by severe recessions.”

History, of course, teaches us that Pollin and Ash are wrong. we only need to look at the total failure of the recent "stimulus" to know this to be true. Unfortunately, this is what is being taught in our institutions of higher learning today, and Paul Krugman is held up as a maven who must always be believed, no matter what.

We'll get what we deserve.

[irish_links]

Technically, Pollin and Ash are probably correct. Ceteris paribus, if the government borrows money that would otherwise not be invested in productive enterprise and uses that money to hire workers, the unemployment rate will go down by definition. So from this perspective, government deficit spending is the most effective tool to reduce temporary excess unemployment.

But the continual exercise of this practice over an extended period of time eventually builds disequilibria that cannot be ignored. Even for a country such as the U.S. that benefits from control of its central bank and the status of its currency as the global reserve asset government debt can reach a point whereby the assumption of incremental debt to “stimulate” the economy has a greater negative effect on future output then it has a positive effect on current output. In other words, you are simply foregoing future growth (and substantially more of it) in order to prop up current employment and consumption.

If the U.S. has not reached this point it is rapidly approaching it. Rather than papering over our structural economic problems with artificial stimuli, almost as a junkie postpones his need to kick with every additional dose of drugs, we need to focus on how to increase real economic output. That is, goods and services that consumer across the globe will purchase at the offered price.

I imagine Pollin and Ash would agree with this in principal. But they would have no idea how to accomplish the objective other than by way of further federal government stimulus. They refuse to accept that slow U.S. growth is in large part due to excess regulation and the burden placed on economic actors by these regulations and our Byzantine tax system. We meed to reform these things and allow the price mechanism and the unfettered allocation of capital to productive uses to breath free again before faster growth can occur. Another idiotic stimulus package will only delay the necessary reforms and add to the burden of future generations who will have to get on with the tough job of domestic economic renovation.