Tags: barro | deficit | spending

Barro: Deficit Spending Spree Does Nothing

By Gene J. Koprowski   |   Monday, 05 Oct 2009 05:18 PM

Federal deficit spending does nothing to stimulate the economy, but tax cuts can definitely increase economic growth, new research by Harvard University economist Robert Barro shows.

“The bottom line is this: The available empirical evidence does not support the idea that spending stimulus programs will likely raise GDP,” writes Barro, with research associate, Charles J. Redlick in The Wall Street Journal.

Barro, a former contributing editor to Business Week and The Wall Street Journal, notes that the global financial retrenchment has focused everyone’s attention on government stimulus packages.

The packages emphasize government spending, based on the view that the "multipliers" of federal spending are greater than one — so that gross domestic product expands by more than the government spending rate.

But this only works during a massive military buildups, which have happened during World War I, World War II, The Korean War, and, to a smaller extent, The Vietnam War. This hasn’t happened at any other time in U.S. history, writes Barro.

“Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller,” writes Barro.

“However, there is empirical support for the proposition that tax rate reductions will increase real GDP.”

Other experts concur. Some are even rejecting stimulus funds. A report in the Dallas Morning News indicates that utilities in Texas rejected $750 million in federal stimulus funds, as the monies came with new, mandated federal regulations that would actually slow construction.

One commissioner, Kenneth W. Anderson Jr. according to the paper, said, "the juice may not be worth the squeeze.”

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Federal deficit spending does nothing to stimulate the economy, but tax cuts can definitely increase economic growth, new research by Harvard University economist Robert Barro shows. “The bottom line is this: The available empirical evidence does not support the idea that...
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2009-18-05
 

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