Wednesday, September 1, 2010

Stimulus Spending Is "Hurting the Economy," Says Brian Wesbury

Chief Economist Wesbury makes some misguided statements here in a Yahoo! video. At one point he makes the statement that $1 of government spending actually results in less than that amount of economic activity.

He is almost corrected by one of the moderators who reminds him that the US government is actually borrowing a lot of the 'money' from the Chinese so it should not be as harmful to the domestic sector!

If you understand Modern Monetary Theory, this almost becomes like an old 'Abbot & Costello' skit.


Mike Norman said...

I saw this interview and I found it to be pathetic. I used to like Brian Wesbury, but now I think he has just become a joke. I don't know what he's practicing, but it ain't economics, I can tell you that. To say that a dollar in stimulus results in a negative effect is absolutely ludicrous. Even if we accept his premise, that the government must borrow first before it spends, the the act of spending via borrowing just shifts demand from one sector of the economy to another. It's a form of income redistribution and CANNOT result in a result less than the dollar that was borrowed. However, readers of this blog know that the government spends by simply marking up bank account balances, so that adds to the financial wealth of the non-governnment. Only in that way does the public have the money to pay taxes and meet their desired savings targets. Wesbury is just a joke.

Tom Hickey said...

Krugman eviscerates him on his record.


Of course, as you point out, MIke, he has no idea of how the monetary system works. He thinks that the US government has to tax to fund itself or borrow to finance itself, when it has a monopoly on currency issuance. What does he think "fiat" means anyway? Pathetic.

Matt Franko said...

From Scott Fullwiler's paper put out this week:

"according to both the tactical and accounting logics, taxes credited to the Treasury’s account and the settlement of Treasury bond auctions can only occur via bank reserve accounts, while the original source of banks’ balances in their reserve accounts can only be previous government deficits (which are net credits reserve accounts) or loans from the Fed (repos, loans, purchases of private securities, or overdrafts—note that an outright purchase of a Treasury security by the Fed to add reserve balances requires a previous government deficit). Therefore, it very much is the operational reality that for taxes to be paid or bonds to be settled, there has to have been previous government spending or loans from the Fed to the non-government sector"

The End! (Except for MORONS!)

Mike Sandifer said...

Nice Franko.