A Cato Institute advertisement, signed by 103 US academics, succinctly argues against the magic recovery packages supported by President Obama and Prime Minister Rudd:
“There is no disagreement that we need action by our government, a recovery plan that will help to jump start the economy.”
President-Elect Barack Obama, January 9, 2009
With all due respect Mr. President, that is not true.
Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance.
More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s.
More government spending did not solve Japan’s “lost decade” in the 1990s.
As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today.
To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.
Source: Cato Institute