Arnold Kling

Too Much is Not Enough

Arnold Kling, Great Questions of Economics
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U.S. News and World Report opines that Federal government spending is rising too quickly.

It's up by almost 14 percent, the biggest government spending spree in a generation. In fact, for the first time in over 30 years, annually appropriated programs controlled by Congress and the president have grown faster than formula-driven entitlement programs like Social Security and Medicare. Only a third of the entire $91 billion increase in annually appropriated funds has been spent on homeland security and national defense; the rest goes for everything from highway construction to farm subsidies.

On the other hand, Paul Krugman writes,

we should have a sensible plan for fiscal stimulus - one that encourages spending now, to bridge the gap until business investment revives...extend unemployment benefits, which are considerably less generous now than in the last recession; this will do double duty, helping some of the neediest while putting money into the hands of people who are likely to spend it. Second, provide aid to the states, which are in increasingly desperate fiscal straits. This will also do double duty, preventing harsh cuts in public services, with medical care for the poor the most likely target, at the same time that it boosts demand.

If these elements don't add up to a large enough sum - I agree with [Jeff] Madrick that $100 billion over the next year is a good target - why not have another rebate, this time going to everyone who pays payroll taxes?

I agree with Krugman. The biggest near-term concern should be the recession. In a recession environment, higher government spending is to be welcomed, not condemned.

Discussion Question. Some conservatives have claimed that Krugman is inconsistent in opposing long-term tax cuts while endorsing short-term fiscal stimulus. Why would Krugman and other economists argue that such a position is not inconsistent?

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