Keynesian spending doesn’t work

Liberls will tell you that we have to spend more to get out of a recession but Keynesian spending doesn’t work.

I want a smaller burden of government spending, so you can only imagine how frustrating it is for me to observe the fight in Europe.

On one side of the debate you have pro-spenders, who call themselves “growth” advocates, but are really just Keynesians. On the other side of the debate, you have pro-taxers, who claim to favor “austerity,” but actually just want big government financed by taxes rather than borrowing.

I had a chance to condemn these statist policy prescriptions in an appearance on the John Stossel show.

Dan Mitchell Discussing Europe’s Faux Austerity with John Stossel

Published on Jun 1, 2013

No description available.


Here are 10 takeaways from the discussion, along with links to further information.

  1. The main point of the interview was to explain that government spending hasn’t been cut in Europe, with the United Kingdom being a poster child for bad policy (you won’t be surprised thatPaul Krugman hasn’t bothered to look at the actual numbers).
  2. Austerity in Europe generally is just a code word for higher taxes. Governments only restrain spending as a last resort.
  3. Excessive spending is the problem, but many people mistakenly fixate on government borrowing.
  4. Keynesian spending doesn’t work, regardless of when it’s been tried.
  5. The Baltic nations are a rare good example of how to respond to a crisis (and another example of Krugman misreading the data), though I should have mentioned that Switzerland never got in trouble in the first place because of its admirable fiscal policy.
  6. We also discussed some historical examples of good policy, such as fiscal restraint in Canada and New Zealand, as well as a shrinking burden of government spending during the Clinton years.
  7. At the end of the interview segment, I say the goal should be toreduce the size of government relative to the productive sector of the economy. I wasn’t narcissistic enough to say “Mitchell’s Golden Rule” on air, but I did say that good fiscal policy occurs when government grows slower than the private sector.
  8. In the Q&A section at the end, I talked about the economic impact of different forms of government spending. Politicians and other defenders of statism like to highlight capital spending, which can have positive effects, but they overlook the fact that the vast majority of government outlays are for things that hinder growth.
  9. Most important, I made the key point about poor people are much better off in pro-market, small-government jurisdictions such as Singapore and Hong Kong, where at least they have opportunity, rather than France or Italy, where the best they can hope for is permanent dependency.
  10. Last but not least, I express some optimism about the possibility of genuine entitlement reform, though I should have acknowledged that nothing good will happen while Obama is in office.

It’s always great to do a show with Stossel since he genuinely care about freedom and wants to explore the details. In previous appearances on his show, I’ve discussed dishonest fiscal policy in Washington, the differences between Texas and California, and the reverse Midas touch of government.

P.S. There is at least one person in Europe who understands the real problem is too much spending.

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