John T. Harvey — The Ryan Budget: A Mistake of Historic Proportions

We are only slowly recovering from the second-worst calamity in economic history. While the recession officially ended almost three years ago, unemployment remains over 8% and real GDP growth is anemic. Paul Ryan and his supporters say that the reason for this sluggish response is the size of the government, the most visible manifestations of which are the national debt and the deficit. They believe that the public sector is leaching resources away from private industry, preventing the latter from booming and restoring prosperity. Their recommendation: trim the fat off our economy by cutting government spending. Then the private sector will be set free, jobs will be created, and real GDP will soar.

History, however, argues that reducing the size of the deficit at this time would not just prove to be ineffective, it would be disastrous. This is precisely what occurred in the middle of the Great Depression when, as a consequence of a misguided attempt to balance the budget, policy makers reduced government spending and drove unemployment up by almost five percentage points. It took over three years to repair the damage. Let’s not do that again.

Read the rest at Forbes | Pragmatic Economics
The Ryan Budget: A Mistake of Historic Proportions
by John T. Harvey | Professor, Texas Christian University

Shades of 1937 and the Treasury view.