09 April 2011

More Fallacies

This interview with Robert Reich, for Labor Secretary for President Clinton, encapsulates nicely what liberals and Keynesians continue to get wrong about economics. First, the 12 year old host of the program states that we were "brought to the brink" over what amounts to 1% of federal spending. I am becoming more and more amused by this argument, which boils down to "we can't cut this program because it costs too little to make a difference." Well, if it costs so little, then they won't miss the money, right? If what Planned Parenthood or NPR does is so significant, then as private organizations they are responsible for covering their own nut. The conservatives and Republicans use this fatuous line of reasoning when it comes to international aid, pointing out how little it is in the grand scheme of the budget (which if you only count the money distributed through the State Department is true, but what they don't mention is the aid funneled through the Defense Department generally and the CIA specifically, which raises that number significantly). The point for both sides remains that if the amount being cut is so small, then why should we fight it? Not why should we make the cut, no?

Next, we come to the argument made by Reich that attempts to balance the budget are what exacerbated the Great Depression in 1937. This silly notion has been disproved time and again. If deficit spending worked and was actually able to boost "aggregate demand", balancing the budget eight years after the depression started wouldn't have been an issue because there had been nothing but federal intervention and deficit spending since the crash in 1929 (I am surprised that no one brought up Hoover and his alleged do-nothingness for good measure). Government spending can not "make up" for slouching consumer demand. It merely crowds out private investment in less efficient production. Any would-be gain is lost in diminished efficiency and higher borrowing costs, not to mention higher taxes.

Then there is the argument that now is not the time to cut spending. Ostensibly because government is needed to boost demand. This assumes that liberals and democrats would be enthusiastic supporters of spending cuts when things are going well. But of course, the argument then is either "well, we have the money, why not spend it" and "if we don't spend this money on these programs, aggregate demand will sag thus causing a recession." This would appear to be having it both ways, no?

What it boils down to is that congress was given authority to handle a few things. And bribing foreign governments and making sure the folks in some remote corner of Wyoming can hear Morning Edition aren't among them. The responsibility of congress should be to keep spending and taxes as low as possible (and please stop comparing our tax rates to other countries, I don't care if people in Norway are just ducky with an effective 70% tax rate, that doesn't mean I have to). The burden for any new proposed spending measure should be if it falls clearly within congress' authority.

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