In this appearance on Canadian TV, I debunk anti-sequester hysteria, pointing out that “automatic budget cuts” merely restrain government so that it grows $2.4 trillion over the next 10 years rather than $2.5 trillion.
I also point out that we shouldn’t worry about government employees getting a slight haircut since federal bureaucrats are overcompensated. Moreover, I warn that some agencies may deliberately try to inconvenience people in an attempt to extort more tax revenue.
But I think the most important point in the interview was the discussion of what happened in Canada in the 1990s.
This example is important because the Obama White House is making the Keynesian argument that a smaller burden of government spending somehow will translate into less growth and fewer jobs.
Nobody should believe them, of course, since they used this same discredited theory to justify the so-called stimulus and all their predictions were wildly wrong.
But the failed 2009 stimulus showed the bad things that happen when government spending rises. Maybe the big spenders want us to think the relationship doesn’t hold when government gets put on a diet?
Well, here’s some data from the International Monetary Fund showing that the Canadian economy enjoyed very strong growth when policymakers imposed a near-freeze on government outlays between 1992 and 1997.
For more information on this remarkable period of fiscal restraint, as well as evidence of what happened in other nations that curtailed government spending, here’s a video with lots of additional information.
By the way, we also have a more recent example of successful budget reductions. Estonia and the other Baltic nations ignored Keynesian snake-oil when the financial crisis hit and instead imposed genuine spending cuts.
The result? Growth has recovered and these nations are doing much better than the European countries that decided that big tax hikes and/or Keynesian spending binges were the right approach.
Paul Krugman, not surprisingly, got this wrong.
[…] The big challenge for Keynesians is real-world […]
[…] They were wrong about Canada in the 1990s. […]
[…] They were wrong about Canada in the 1990s. […]
[…] They were wrong about Canada in the 1990s. […]
[…] They were wrong about Canada in the 1990s. […]
[…] They were wrong about Canada in the 1990s. […]
[…] They were wrong about Canada in the 1990s. […]
[…] They were wrong about Canada in the 1990s. […]
[…] They were wrong about Canada in the 1990s. […]
[…] were wrong about Canada in the […]
[…] to Canada and Sweden for mostly or totally eschewing tax […]
[…] https://danieljmitchell.wordpress.com/2013/03/05/challenge-for-keynesian-anti-sequester-hysterics-why… […]
[…] any of them to justify their Keynesian argument after looking at evidence from the U.S. and Canada in the […]
[…] than the United States, in large part because various Canadian governments have done a good job reducing the burden of government spending and dramatically lowering the corporate tax […]
[…] than the United States, in large part because various Canadian governments have done a good job reducing the burden of government spending and dramatically lowering the corporate tax […]
[…] evidence, which is why I’ve used data from nations such as Germany, Japan, Switzerland, Canada, the United Kingdom, and the United States to show that bigger government generally hampers […]
[…] evidence, which is why I’ve used data from nations such as Germany, Japan, Switzerland, Canada, the United Kingdom, and the United States to show that bigger government generally hampers […]
[…] I also issued that same challenge one day earlier, asking Keynesians to justify their opposition to sequestration given that Canada’s economy prospered in the 1990s when government spending was curtailed. […]
[…] I also issued that same challenge one day earlier, asking Keynesians to justify their opposition to sequestration given that Canada’s economy prospered in the 1990s when government spending was curtailed. […]
[…] I also issued that same challenge one day earlier, asking Keynesians to justify their opposition to sequestration given that Canada’s economy prospered in the 1990s when government spending was curtailed. […]
[…] More generally, I’ve challenged all Keynesians to explain why Canada’s economy enjoyed good growth when there was genuine spending […]
[…] for instance, of nations growing faster when government outlays are constrained, including Canada in the 1990s and the United States during both the Reagan years and Clinton […]
[…] by an appearance on Canadian TV, I asked yesterday why we should believe anti-sequester Keynesians. They want us to think that a very modest reduction […]
[…] good evidence of nations growing faster when government outlays are being controlled, including Canada in the 1990s and the United States during both the Reagan years and Clinton […]
[…] was even more aggressive about reducing the size of the state during the 1990s. Their economy also did quite well, notwithstanding Keynesian […]
“Why Did Canada’s Economy Boom When the Burden of Spending Was Sharply Reduced?”
Because the Bank of Canada was able to cut interest rates by 5% while government spending was shrinking, providing offsetting monetary stimulus?
Do you expect the Fed will be able to provide that kind of offsetting monetary stimulus given that current rates are basically zero? If not, we’re not going to replicate the Canadian scenario.
[…] https://danieljmitchell.wordpress.com/2013/03/05/challenge-for-keynesian-anti-sequester-hysterics-why… […]
[…] Mitchell asks a good question: “Why Did Canada’s Economy Boom When the Burden of Spending Was […]