CQ Roll Call May 23, 2013 | Register

Spending Cuts Won't Cause a Recession

Posted at 12:15 p.m. on Jan. 22

Robert Barro: “Going over the ‘fiscal cliff’ would have had the attraction of seriously cutting government spending, although the composition of the cuts – nothing from entitlements and too much from defense – was unattractive.”

“It is true that some macroeconomic modelers…forecasted that going over the cliff would have caused a recession. But those results come from Keynesian models that always predict that GDP expands when the government gets larger… Another recession in the US would not be a great surprise, but it can be attributed to an array of bad government policies and other forces, not to cutting the size of government.”

4comments
Budget & Taxes, Economy

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  • habeasdorkus

    It’s disappointing that a professor of economics doesn’t appear to even understand the concept of Keynsian economics. I mean, I don’t give much truck to freshwater RBC macro, but I can at least explain how they think it works without making myself look dumb.
    “Keynesian models . . . always predict that GDP expands when the government gets larger” – Yeesh. Barrow should go ask Mankiw for a refresher course on macro 101.

    • Shma

      It’s even worse when you look at the models they use with to try and claim that a 6% cut to GDP won’t cause a recession. Their models pretend that when government stimulates the economy through borrowing, citizens offset that stimulus by reducing spending in the same amount because they know their taxes will have to go up eventually to pay off the debt (Barro alludes to this assumption of their models in his opening paragraph). Now besides the fact that this has absolutely no connection to how people spend money in the real world, they don’t even get the right conclusion from that assumption. If they thought about it, they’d realize that even these theoretical rational agents would collectively save much less than the total borrowed, since the amount borrowed by the government would be paid back over a long period at interest rates under inflation and therefore only require a modest raise in the future tax rate. In other words, even their fake models would show that stimulus is good for the economy if they took 5 seconds to think through the details.

      But that’s not the job of these economists. Their goal is to give intellectual cover to right-wing policy. They don’t care that their models are full of holes and fall apart as soon as you start to look at them.

  • DemInExile

    I’m a biologist and if I were as sloppy with my words my reputation would be in tatters and I’d be out a job. How the hell can all these “economists” who have academic careers and credentials get away with making things up and/or deliberately misrepresenting others work? Barro and so many of the talking head economists deserve professional censure because with academic freedom comes the responsibility. If Economics wants to be taken seriously as an academic discipline rather than a bunch of carnival barkers, they had best think about ways to boost the integrity of their own ranks.

    • Tom_P

      Because money talks.

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