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Home Publications Blogs Beat the Press Government Spending Bad: What Some Economists Say

Government Spending Bad: What Some Economists Say

Tuesday, 24 April 2012 22:13

In reporting on the victory of François Hollande in the first round of the French presidential elections the NYT noted Mr. Hollande's opposition to further austerity measures. It then told readers:

"But while Mr. Sarkozy puts his emphasis more on spending cuts, reducing the tax burden on companies and liberalizing the labor market, Mr. Hollande has charted a traditional socialist path of public spending and job creation. That, some economists say, is likely to make matters worse, possibly sending financial markets into a tailspin that invites further chaos.

'The real problem is the preference for public spending,' said Nicolas Baverez, an economist and author. 'The main candidates continue to believe that it is the state that creates jobs and that will innovate, and this is wrong. Public spending is 56.6 percent of gross domestic product, which is huge. And the increase in public spending and taxes is downsizing the private sector and private jobs.'"

While "some economists" do say things like this, other economists, including folks like Nobel Prize winner Paul Krugman, say that austerity as a way to control budget deficits is self defeating in the current economic situation. It reduces GDP, which in turn lowers tax collections and raises expenditures on items like unemployment benefits.

Rather than just telling readers what "some" economists say on the virtues of austerity, it would have been helpful to include the views of what some other economists say.

(Thanks to Josh Greenstein for calling this one to my attention.) 

Comments (7)Add Comment
written by anon, April 25, 2012 5:42
And a web search suggests that Nicolas Baverez is not even an economist --- rather a historian and essayist.
written by David, April 25, 2012 6:25
Baverez says
and the increase in public spending and taxes is downsizing the private sector and private jobs.

Purely made up stuff. Taxes and spending went down in England. Fat lot of good it did them. How do these jokers make it into articles about serious topics? Reports like this cause the left to join the right in accusing the NYT of bias.
written by Kat, April 25, 2012 6:59
Shouldn't they move this stuff over to the opinion section?

If they don't have any room there, I could suggest a few columnists to dump.
NYT Never Heard of the Most Famous Economist in History
written by Paul, April 25, 2012 8:38
Apparently, John Maynard Keynes is unknown in New York City where economic knowledge must be in short supply. Perhaps the Times could tell us what Lord Keynes would say about government spending instead of some guy named Baverez.
written by skeptonomist, April 25, 2012 9:22
The claim that "public spending and job creation" "[send] financial markets into a tailspin" is something that in principle that could be tested from historical data, and it would seem that "some economists" as well as "other economists" and maybe even financial reporters should try to test it, rather than throw around unsupported "theoretical" claims.

It is absolutely certain, though, that tailspins of financial markets are usually caused by the collapse of excessive expansion and speculation in the private sector. There has been some success in restraining these things historically, especially by the New Deal and other programs of the time, but many of these regulations have been thrown away and there has been very little success in replacing them after the 2008-9 collapse. The chance that the next financial collapse - which may not be too far in the future - will be caused by the private sector therefore seems much greater than that it will be caused by socialism.

Socialism reduces the amount of money available to private financiers to play around with, so reduces the chances of financial collapse. Government spending and investment is not nearly as sensitive to the business cycle as private spending and investment. It is a reasonable hypothesis that the greater stability of many leading economies, especially the US, since the Depression is at least partly due to the greater role of government.
Another bad piece by Casey Mulligan in NYT
written by Eclectic Obsvr, April 25, 2012 12:37
Just wanted to point out there is an egregious piece in Economix Blog from NYT by Casey Mulligan that just is so full of nonsense propositions that I'm surprised that anyone allowed it.
For example-- the link to one of the stipulations is WSJ Editorial Page-- as if that's a source of academic research. Really. I'd like to see him taken thorougly to task.

If he has any Economics expertise it sure isn't in Macro.
which economic theory makes the most sense
written by mel in oregon, April 25, 2012 2:36
in the united states & europe of today you have the milton friedman (chicago school) of economics subscribed to by both the obama administration & the hard right republicans. it's just a difference in scope is all it is. both see the protection of creditors (banks, financial instutions), basically anyone owed money as the only entity or people needing protection. homeowners underwater, students owing more than a trillion dollars, credit card holders owing a trillion dollars, people living on social security or those that soon will be such as boomers, why what in the hell are they griping about? after all if they have lost their pensions or 401ks after a lifetime of work because of wallstreet speculation, the poor old widow must be at fault, not the wallstreet mafia. so the other economic school is keyenesian which includes stiglitz, krugman, baker & many others. they believe deficit spending by the government is the only cure. unfortunately for them, they are losing, in fact they are totally ignored by the establishment. there are other economists such as jack rasmus & india's prabhat patniak that say that the globalization of money (the global money parade is what rasmus calls it) is so stupendously strong & so out of control that there is probably nothing to stop it. patniak calls for mass mobilization, rasmus for a reversal of money flowing upward from the poor to the wealthy along with a tremendous increase in government programs. unfortunately both probably are doomed to failure. that's why china & india will have an economy & standards of living far beyond our own in a few decades.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.