the myth of ‘job-killing’ spending

Princeton economist Alan Blinder is worried about a “wrong-headed” idea that is popular with US Republicans. Blinder refers to British economist John Maynard Keynes, who ended his famous 1936 book, The General Theory of Employment, Interest and Money, pointing out that ideas “both when they are right and when they are wrong, are more powerful than is commonly believed. Indeed, the world is ruled by little else. …. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”

Right now, I’m worried about the damage that might be done by one particularly wrong-headed idea: the notion that, in stark contrast to Keynes’s teaching, government spending destroys jobs.

No, that’s not a typo. House Speaker John Boehner and other Republicans regularly rail against “job-killing government spending.” Think about that for a minute. The claim is that employment actually declines when federal spending rises. Using the same illogic, employment should soar if we made massive cuts in public spending—as some are advocating right now. ….

It is easy, but irrelevant, to understand how someone might object to any particular item in the federal budget—whether it is the war in Afghanistan, ethanol subsidies, Social Security benefits, or building bridges to nowhere. But even building bridges to nowhere would create jobs, not destroy them, as the congressman from nowhere knows. To be sure, that is not a valid argument for building them. Dumb public spending deserves to be rejected—but not because it kills jobs. ….

Despite … evidence and logic, some people still claim that fiscal stimulus won’t create jobs. Spending cuts, they insist, are the route to higher employment. And ideas have consequences. One possibly frightening consequence is that our limping economy might have one of its two crutches—fiscal policy—kicked out from under it in an orgy of premature expenditure cutting. Given the current jobs emergency, that would be tragic.

Alan S. Blinder, “The GOP Myth of ‘Job-Killing’ Spending“, Wall Street Journal, 21 June 2011.

Thanks to Mark Thoma for the pointer.

Alan Blinder (born 1945) was vice chairman of the US Federal Reserve from 1994 to 1996.

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