There never was an “economic stimulus”

blog_govt_spending_recession

Source: the Wall Street Journal

All the recessions since World War Two were followed by an “economic stimulus”.   The current one is the exception.  As the chart above indicates, government spending—combined local, state and federal government spending—has actually declined.

The idea behind “economic stimulus” was that increased government spending would put people to work and put money in circulation so that the recession would not have a domino effect and develop into a full-fledged recession.

Of course some of this was not intentional.  Spending for unemployment insurance and other safety net programs automatically increases in hard times.

For the idea to work, there has to be deficit spending.  There is no economic stimulus if governments take as much money out of the economy through taxes as they inject through spending.   Keynesian economists think this should be offset by government budget surpluses when the economy is booming and needs to be cooled off.

You could argue about whether this is justified and how much effect it really works.  I personally think that the severity of the Great Recession is due to the long-range decline of American wages in inflation-adjusted terms.

But it is interesting to note that the current recession is the worst since the Great Depression of the 1930s and that it is the only one followed by an actual decrease in government spending.

LINK

Chart of the Day: Here’s Why the Recovery Has Been So Weak by Kevin Drum for Mother Jones.

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