Friday, January 16, 2009

Spending cuts are the key? To what?

Martin Masse at the FP writes here: Spending cuts are the key - FP Comment.

He argues government spending during boom times diverts resources away from business, which artificially inflates particular sectors relative to others.
When governments launch massive spending programs, they simply grab more of the factors of production that businesses need, which keeps the economy down.
I have a few problems here.

What past massive spending does he mean? I was under the impression that we hadn't spent enough public monies on infrastructure, that it desperately needed renewal. I thought we'd cut spending to balance the budget. If there was an increase in spending in, say, the last couple of years, that still couldn't explain his point - that spending would be too recent I think.

Which sectors were inflated by government competition? Automobiles? Credit? Real estate? High tech and IT? Really, I don't know what he's talking about here. I don't see the evidence that past inflation or bubbles were created by too much government spending.

I thought stimulus spending seeks to employ idle resources. If the resources are idle, then how is there competition and thus inflation? If the resources are NOT idle, why is the economy shrinking? There is a decent point underneath this, though: the government shouldn't outbid private industry for already employed resources, if at all possible.

When I see opinion without any facts or data to back it up, I usually see red flags waving.


  1. It was the "Chicago School" self-regulated capitalism model embraced by CD Howe and the Fraser Institute that landed the world in this mess. Let's go with the other guys, Joe Stiglitz and Paul Krugman, you know the Nobel economists, the guys who kept warning us what was coming while our leaders ignored them, to show us the way out.

  2. Right on. This is the Chicago school talking, all the while ignoring it was their (collective) voice calling always for taxcuts (in good or bad times), deregulation, privatization of everything.
    They are relentless. So "their guys" sink the economy, and so to reward them, give them more on the taxpayer's dime, and of course, who pays for that new deficit, not their "few guys" but the middle class, the ones who will be hurting during this recession.
    These guys are free ridings of society. They don't build the roads, the hospitals, and so on, that's on the public dime.
    I'm on a roll. They are the same "joes" who want to privatize health care and get rid of unions.
    They are the same ones who during the bad times, say get rid of unions, and during good times, try to convince many that one doesn't need them anymore.
    Remember that both the Fraser Institute and C.D.Howe are funded big-time by the Donor Institute, coming out of the US.
    Although this is an old article, it gives a great overview of the ascension of "right-wing" conservative think tanks and policy shift in Canada, the rise of neo-conservatism in Canada, and "to enlighten people in this country as to the virtues of market discipline."
    See Right-Wing Paymaster

  3. Market - yes, OK.
    Discipline - no so much.

    It's funny, when I talk with some Americans I know, they immediately suspect big government as corrupt and incompetent.

    But that's how I feel about big business. It's like looking in a mirror, to me. But not to them. I guess its a one-way mirror.