The big economic battle
Date posted: October 5, 2011
Politicians are divided over what should be done to help the struggling economy. One source of disagreement is over whether the federal government should spend more or should concentrate on spending less and reducing the deficit. But N.C. State University economist Mike Walden says the disagreement isn’t just about politics — it’s also about economics.
“Economists are not agreed upon what is the best approach, for example, to outlining the role of the federal government in dealing with today’s economic matters. On the one side, you do have economist’s well-credentialed economists who say we actually need more government spending to replace the private spending that’s not occurring when we’re in a recession.
“These are generally called Keynesians because they take their name from John Maynard Keynes, who actually developed that theory. So, these economists recognize, yes, when the federal government spends more and borrows more, the debt will go up, but they argue this is temporary, and it’s needed to replace, again, that private spending that’s not occurring.
“But on the other side, you have equally well-credentialed economists who say, no, that’s the exact wrong approach. What we need to worry about is the fact that when people see government spending going up, that’s taking resources out of the private sector that could have been expended privately. It also implies potentially higher taxes, so people may … refrain from spending in order to pay that higher tax bill. So, these economists say that what we need is the exact opposite approach — less federal spending, lower deficit, lower debt.
“And so, yes, this does get translated into politics, but the point I want to make is this is also a disagreement among economists.”
Category: Economic Perspective