Government Spending Bad: What Some Economists Say

April 25, 2012

In reporting on the victory of François Hollande in the first round of the French presidential elections the NYT noted Mr. Hollande’s opposition to further austerity measures. It then told readers:

“But while Mr. Sarkozy puts his emphasis more on spending cuts, reducing the tax burden on companies and liberalizing the labor market, Mr. Hollande has charted a traditional socialist path of public spending and job creation. That, some economists say, is likely to make matters worse, possibly sending financial markets into a tailspin that invites further chaos.

‘The real problem is the preference for public spending,’ said Nicolas Baverez, an economist and author. ‘The main candidates continue to believe that it is the state that creates jobs and that will innovate, and this is wrong. Public spending is 56.6 percent of gross domestic product, which is huge. And the increase in public spending and taxes is downsizing the private sector and private jobs.'”

While “some economists” do say things like this, other economists, including folks like Nobel Prize winner Paul Krugman, say that austerity as a way to control budget deficits is self defeating in the current economic situation. It reduces GDP, which in turn lowers tax collections and raises expenditures on items like unemployment benefits.

Rather than just telling readers what “some” economists say on the virtues of austerity, it would have been helpful to include the views of what some other economists say.

(Thanks to Josh Greenstein for calling this one to my attention.) 

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