As if Henry Blodget’s friends haven’t done a good enough job of that after a decade of artificially low interest rates, rebate stimulus, deficit spending, bailouts, etc.
Here’s Blodget’s tweet on this, which I read about at Bob Wenzel’s blog, and here’s his follow-up: “DEAR RON PAUL FANS: Yes, Your Candidate’s Plan Will Destroy The Economy.”
If the federal government doesn’t spend the $1 trillion Ron Paul wants to cut, evidently no one will spend it. So even if that money is going down a rathole, and/or paying a bunch of time-serving drones double or triple the median American income to obstruct production, this is essential to our prosperity and cannot be discontinued.
Perhaps we should build some pyramids while we’re at it, since “spending” is all the economy is about. Not allocating resources in such a way as to satisfy consumer wants at the least cost in terms of opportunities foregone. Just “spending.” Nevermind all the micro-level corrections throughout the economy that need to be repaired, and which an extra $1 trillion would go a long way toward repairing. Let’s think instead in terms of a crude macro aggregate — “spending” — and see if politically determined, economically arbitrary “spending” will just happen to redirect resources to those sectors where consumer demand wants them, following the years and years of misdirected resources that occurred during the artificial boom.
Blodget’s pal, writer Zeke Miller, warns that “cutting $1 trillion from the federal budget would be an instantaneous 7 percent cut to GDP.” So because of the way GDP is figured, we are to believe that all government activity is a plus, even though it takes place outside the profit-and-loss nexus (i.e., the money government spends is simply seized from the population, so government cannot determine whether what it produces is actually desired and/or whether it comes at the expense of things people value more). Since economic calculation cannot occur under these conditions, it is worse than arbitrary to claim government spending as an unambiguous contribution to human welfare. (See Robert Batemarco, “GNP, PPR, and the Standard of Living.”)
But let’s grant ol’ Zeke this point. Let’s be sports. What about when the federal budget was cut by two-thirds after World War II? Then as now, Keynesians predicted catastrophe. Nine million would be unemployed! they said. We can’t just stop building tanks! (Alvin Hansen actually said that — we can’t stop building tanks even when we’re no longer fighting. Hansen was Keynes’ most significant American disciple.) I talked about this a bit in this video.
The actual result? The single greatest year for the private economy in U.S. history, with civilian output increasing by 30 percent. True, the GDP figures didn’t look good, but that goes to show what a lousy proxy they can be. No one in his right mind thought the economy was poor in 1946 (though writers like Miller and Blodget use the same flawed figures to argue that the U.S. was prosperous during World War II — an equally absurd conclusion). And Keynesians shouldn’t bother pretending that “pent-up consumer demand” solved the problem — neither the timing nor the magnitudes involved will allow that conclusion.
More on all this in my 33 Questions About American History You’re Not Supposed to Ask.