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The Forum > Article Comments > Avoid spending like there's no tomorrow > Comments

Avoid spending like there's no tomorrow : Comments

By Tony Makin, published 2/4/2020

Questions arise about whether the fiscal response is too expansive, is the right form, and whether generous cash handouts should have been included.

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Aidan, the main authority on this is US economist Robert Barro, who has found no evidence of a successful stimulus policy from Roosevelt's New Deal onwards. On the contrary, government spending has invariably peaked after the economy has begun to recover, and has impeded private sector recovery.
Posted by Faustino, Monday, 6 April 2020 12:49:42 PM
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Faustino,
Barro's work is based on false assumptions - the biggest of which is that the more money the government puts into the economy now, the more it must take out in future.

In reality there is no credible mechanism for government spending to impede private sector recovery. Instead it enhances private sector recovery, as it creates more profitable opportunities for the private sector.

Governments usually take time to react, so there's no surprise that government spending peaks after the economy has begun to recover - getting the spending peak and the recovery start to coincide exactly would be extremely difficult and offer no great advantage. And if it peaks (and therefore starts to decline) before the recovery starts, it would make the recovery difficult to sustain.
Posted by Aidan, Monday, 6 April 2020 2:02:06 PM
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