Tuesday, November 27, 2012

John Carney — The Hunger Artist, or, How to Think About Government Spending and Taxes

John Carney attacks "Starve the Beast" as based on bad economics.


David said...

The problem with the illusion of the Starving Beast is that it can quite easily result in policy errors, such as permitting too much government spending during booms and too much “belt-tightening” during busts.

Carney's argument has a certain rhetorical symmetry but I don't think it reflects reality very closely. The evidence of recent history is that there is a bi-partisan bias against discretionary spending, whether in boom or bust times. In the "boom '90's" we had "wefare reform" the Gore initiative to "streamline government," and the Clinton suplusses of which the Democrats are still so absurdly proud. William Vickrey wrote " We Need a Bigger Deficit " as an antidote to the anti-deficit mania of the 1990's.

Republicans have used "starve the beast" selectively to promote cuts to programs that tend to help people who vote democratic, while at the same time voting for all manner of "deficit busting" corporate welfare for their favored constituents. The Democrats actually seem more devoted to deficit reduction, but want a fig leaf from the revenue side so that they can look like "balanced" beast starvers. The two parties may be in agreement that "revenue funds spending" as Carney says, but the more important thing that unites them is their adherence to the neo-liberal agenda that seeks to put governments at the service of the financial cartels. It's not that the government spent too much in the boom, it's just that their underspending wasn't noticed as much. It is, however, very convenient for the banks for people to believe that overspending in "the boom" caused the great recession and that cutting during "the bust" is therefore justified and indeed necessary.

John Carney said...

There's an obvious MMT explanation for this phenomenon that I didn't go into in my piece. Of course spending isn't constrained by taxes collected. That's just not the way government finance works.