Monday, July 27, 2009

Credible Promises

Keynes didn't appreciate that it is hard to cut government spending once you start spending during a recession, so how will our budget deficit vanish to remove the temptation to print loads of new currency? This quote from Yahoo today suggests that taxes will rise sharply in two years but if I anticipate this do I save today? Will people vote for Republicans who won't follow through with this tax "medicine"?

"U.S. officials told reporters that the U.S. side stressed to the Chinese that the United States has a plan to bring the deficit down once the economic crisis has been resolved. Officials said Bernanke discussed the Fed's exit strategy from the current period of extraordinary monetary easing."

What is this plan? Democrats raise expenditure and know that they can't ex-post cut expenditure so somebody's taxes are going up. We may move to Bermuda to avoid our patriotic duty.


Rodger Malcolm Mitchell said...

Regarding worries about government spending:

If a reporter were to come to his editor with a proposed article titled, “President Obama is gay,” the editor would demand supporting evidence, before that article ever saw daylight.
However, if the same reporter submitted an article titled, “Federal deficit is too high,” history says the editor would ask for no supporting evidence, nor would the article contain any. The media merely assume, as a matter of faith, that revenue neutrality is more prudent than deficits.
Economics is rare, perhaps unique, among sciences, most of which demand evidence for their hypotheses. Only in economics can intuition, faith and popular wisdom obviate facts or even the desire for facts. Thus, I have had editors, columnists and reporters tell me it is “obvious” that large deficits are unsustainable, lead to recessions, depressions, inflations and hyper-inflations. When I ask for evidence to support these views, I seldom hear from them again, probably because they feel scientific evidence is unnecessary in a science, but more importantly, they don’t have any.
Even the Concord Coalition, an organization that for seventeen years, has collected vast amounts of money to preach for federal deficit reduction, unashamedly offers no evidence to support its views. Check its website,, or write to them and you will see.
Because our leaders parrot the economic beliefs promoted by the media, lack of evidence has contributed heavily to government actions that yield repeated recessions. Until the media learn to ask, “What is your evidence?” we will continue to suffer periodic, economic traumas. These traumas may seem inevitable and unavoidable, but in reality they are caused by beliefs lacking evidence.

Rodger Malcolm Mitchell

Josh said...

Rodger, good points.

Matt, when are you going to post about environmental economics again?