Archive for the ‘deficit spending’ Category

Audacity, Hope and Obama’s Spending Stimulus: Once Discredited Theory Gets A Real Try

January 11, 2009
President-elect Obama proposes an unparalleled test of Keynes’ decades-old idea: that deficit spending on a grand-enough scale can inspire the confidence to right a sinking economy.
By Peter G. Gosselin
The Los Angeles Times
January 11, 2009
Reporting from Washington — In a measure of how quickly its options are shrinking, the United States is about to embrace an economic theory that was widely thought for most of the last generation to have been discredited: the idea that great bursts of deficit-funded government expenditure can jolt an economy back to growth.

And the nation is poised to put this theory to the test on a scale untried in peacetime by any developed country on Earth.

President-elect Barack Obama will soon unveil a package of tax cuts and spending increases that, combined with already planned spending, would push Washington’s 2009 deficit to between $1.5 trillion and $2 trillion — more than 10% of the economy’s output. And he will argue that this tidal wave of federal expenditure should continue into next year, and perhaps beyond.

Only during World War II did U.S. government expenditures account for a greater share of economic activity, according to federal statistics. That’s also true for virtually every other developed country.

“There’s been nothing of the magnitude of what the incoming administration is contemplating — certainly not as intentional policy — in the modern era,” said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington.

Obama Pressed From Left on Stimulus
Obama Stimulus: Trapped Between Too Little Rock and Paul Krugman Nightmare

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According to Keynesian economics the state should stimulate economic growth and improve stability in the private sector – through, for example, interest rates, taxation and public projects.