"We are in the middle of a global economic contraction, it is not the time to be reducing spending"
I disagree. It's time to put Keynesianism to bed again. The only reason it came back to life was because it told politicians what they wanted to hear a couple of years ago. What it's time to stop doing is pretending that the solution to the problem is for the government to suck a dollar out of the economy to generate 75 cents of wealth and 50 cents of debt. In the real world, the Keynesian government multiplier is less than 1, and that cracks the entire theory wide open. And once you plug that number into the theory, it'll tell you the same thing.[1]
We absolutely need to cut government spending. Government can move dollars but it has proved incapable of generating wealth. It boggles my mind that after the past couple of years we're even talking about this. The final test of a theory is that it makes correct predictions, and the predictions based on Keynesianism have been repeatedly and continuously wrong. It's time to stop pretending it's because we're still not doing it hard enough.
[1] (Also, the multiplier is not a static universal constant. Like pretty much everything else economic, it reacts to conditions; if government were actually too small it might indeed be over 1 to grow it some more. So it's not that the optimal answer is to cut spending to 0, that's typical first-order thinking. It's just that today, the multiplier is way less than 1, and we've got a lot of shrinking to do before that's even close to changing.)
I disagree. It's time to put Keynesianism to bed again. The only reason it came back to life was because it told politicians what they wanted to hear a couple of years ago. What it's time to stop doing is pretending that the solution to the problem is for the government to suck a dollar out of the economy to generate 75 cents of wealth and 50 cents of debt. In the real world, the Keynesian government multiplier is less than 1, and that cracks the entire theory wide open. And once you plug that number into the theory, it'll tell you the same thing.[1]
We absolutely need to cut government spending. Government can move dollars but it has proved incapable of generating wealth. It boggles my mind that after the past couple of years we're even talking about this. The final test of a theory is that it makes correct predictions, and the predictions based on Keynesianism have been repeatedly and continuously wrong. It's time to stop pretending it's because we're still not doing it hard enough.
[1] (Also, the multiplier is not a static universal constant. Like pretty much everything else economic, it reacts to conditions; if government were actually too small it might indeed be over 1 to grow it some more. So it's not that the optimal answer is to cut spending to 0, that's typical first-order thinking. It's just that today, the multiplier is way less than 1, and we've got a lot of shrinking to do before that's even close to changing.)