On Keynesian policy and big government, as I've explained many times (e.g.), there is no necessary connection between the size of government and Keynesian stabilization policy. Want the government to grow? Then cure recessions by increasing spending, and pay for it by raising taxes during the good times. After a few business cycles under this policy, government will be larger. This is the strategy that Democrats are accused of playing.
Want the opposite result? No problem, just use tax cuts to stimulate the economy during a recession, then pay for the cuts by reducing government spending during the subsequent boom. A few cycles later, and government is much smaller. This is the Republican starve the beast strategy that they fully admit to playing (I am abstracting, of course, from the political difficulties with either strategy).
Want to keep government the same size? Then simply use the same policy tool on both sides of the business cycle. Increase government spending in a recession, then reverse it in the good times, or, alternatively, cut taxes during the bad times, then raise them when things improve.
Summarizing: Using a different policy tools on each side of as recession changes the size of government, while using the same policy tool does not. But the main point is that, contrary to what you may have been led to believe, there is nothing inherent in Keynesian economics that connects stabilization policy to the size of government.
Wednesday, June 23, 2010
Publicada por Miguel Madeira em 12:48