Economic stimulus and Keynes = a contradiction of being "fiscally conservative?"

Great Debates
21

“Fiscal conservatism” might reasonably be defined as “not spending more than you take in”. Governments aren’t business enterprises, so there’s no reason for them to be spending a lot less than they take in–governments aren’t supposed to be making a profit–and given their unique powers over the supply of money (they can “print” more of the stuff) it’s not too un-conservative for a sovereign state to maybe run a little bit of a deficit. If there’s some enormous crisis–World War II, Martians invading, a comet hitting Planet Earth, a global pandemic–even a pretty staunch “fiscal conservative” might be OK with borrowing quite a lot of money. More controversially, many would argue that it’s OK to borrow even quite a lot of money during an economic contraction. I’m using terms like “a lot” or “a little bit” here; those are relative terms, and instead of talking about dollar amounts (or euro amounts or yen amounts) we should probably look at percentages.

So, courtesy of the folks in Langley, we have a list of the budget revenues and expenditures of the various countries of Planet Earth, and also a list of the “size of the economy” of each country, that is, its GDP (on an official exchange rate basis, not purchasing-power parity, since the other list is calculated on an official exchange rate basis).

Some “fiscally conservative” countries:

Canada
revenues: 649.6 billion (2017 est.)
expenditures: 665.7 billion (2017 est.)
GDP: 1.653 trillion (2017 est.)
(a small deficit of just under 1% of GDP)

Denmark
revenues: 172.5 billion (2017 est.)
expenditures: 168.9 billion (2017 est.)
GDP: 325.6 billion (2017 est.)
(a modest surplus of about 1% of GDP)

Finland
revenues: 134.2 billion (2017 est.)
expenditures: 135.6 billion (2017 est.)
GDP 252.8 billion (2017 est.)
(a deficit of a little over one half of a percent of GDP)

Germany
revenues: 1.665 trillion (2017 est.)
expenditures: 1.619 trillion (2017 est.)
GDP: 3.701 trillion (2017 est.)
(a surplus of nearly 1.25% of GDP)

Norway
revenues: 217.1 billion (2017 est.)
expenditures: 199.5 billion (2017 est.)
GDP: 398.8 billion (2017 est.)
(a surplus of well over 4% of GDP, which is kind of huge, really. Geeze, Norway, live it up a little!)

Sweden
revenues: 271.2 billion (2017 est.)
expenditures: 264.4 billion (2017 est.)
GDP: 535.6 billion (2017 est.)
(a surplus of nearly 1.27% of GDP)

Note that many would call several of those countries “socialist”, especially the Scandinavian and Nordic ones (Denmark, Finland, Norway, and Sweden), but all of them are actually fundamentally capitalist–there are sectors which are nationalized (I believe Norway’s oil industry is state owned) but for the most part the “means of production” are NOT collectively owned or owned by the state; rather, most goods and services are provided by privately-owned for-profit businesses. Certainly Germany is textbook example of a dynamic modern capitalist economy.

Now, for a country that is NOT fiscally conservative:

United States
revenues: 3.315 trillion (2017 est.)
expenditures: 3.981 trillion (2017 est.)
note: revenues exclude social contributions of approximately $1.0 trillion; expenditures exclude social benefits of approximately $2.3 trillion
doing the math the U.S. federal government likes to put in a footnote
total revenues: 4.415 trillion
total expenditures: 6.281 trillion
GDP: 19.49 trillion (2017 est.)
(a deficit of over 9.5% of GDP)

What’s more, these are all 2017 numbers. From The Washington Post from late last year U.S. budget deficits were expected to be high and increasing before the pandemic, and the sharp economic downturn we’re about to see as a result of efforts to combat it. That was a result, fundamentally, of the policies of the Republican Party, all by themselves–they only lost control of the House of Representatives in the elections of November 2018.

Bottom line: The party that claims to be “fiscally conservative” in reality has the spending habits of the proverbial drunken sailor.

Also: “Fiscal conservatism” has nothing much to do with the size of the government as such, or with the size of the social safety net. (Afghanistan had 2017 revenues of 2.276 billion against expenditures of 5.328 billion, on a 20.24 billion GDP, a deficit of a bit more than 15% of the national economy. I’ve never heard anyone raving about their national healthcare system or family leave policies. Of course they’ve got that whole “four decades of hideously destructive wars” thing going.)

Bottom bottom line: We don’t need to nationalize the means of production in the U.S.A. Roll back the idiotic Trump tax cuts for the very wealthy[sup]1[/sup]. Raise the Social Security payroll tax cap[sup]1[/sup]. Stop the Endless Land Wars in Asia (which, in addition to costing a hell of a lot of money, have also gotten untold numbers of people–including many Americans–killed and maimed, and are not only stupid but also fundamentally immoral), and don’t get us involved in any new Endless Land Wars in Asia. Those would all be a good start on true “fiscal conservatism”.

[sup]1[/sup]Of course now we’re up against it fiscally speaking, headed for–at the very least–a recession, and maybe a full-on global depression, and really don’t need to be doing anything that could hit the brakes on the economy right now. Oopsie! Thanks, GOP!

22

While Krugman’s sentiments are valid — at least in the same trivial way that a cobra snake is less venemous than a black mamba — the words of Krugman that RitterSport quotes paint the exact opposite conclusion from that which RitterSport manages to draw! The quote specifically contradicts the idea that Friedman had any interest in fiscal stimulus.

23

Four points:

  1. From a high-level view, the economic stimulus payments aren’t fiscally conservative. They’re a drastic response to a drastic situation.

  2. Fiscal conservatism is a set of principles, not a single iron-clad rule. The question in the OP is a bit like asking if it’s a contradiction for someone who believes in non-violence to use force to protect their children from a physical attack.

  3. One of the principles of fiscal conservatives is that spending decisions are better made by individuals than the government. So providing funds to individuals rather than a massive direct government spending program is consistent with that principle.

  4. Fiscal conservatism isn’t a plan to not spend money. It’s a concept of spending money effectively, balancing government spending against revenues, prioritising investment over cash transfers, limiting taxes in order to enable the private sector, and planning for the long-term via incremental changes rather than sweeping ones. I haven’t seen any cost-benefit analysis from the Treasury Department or forecasting models comparing stimulus and non-stimulus scenarios. I’d hope economists in the US government are generating them and the government leadership is looking at them. It’s quite possible that an analytic review of the economic stimulus payments shows that they’re better off for the long-term economy than not providing them. If so, the payments are consistent with other principles of fiscal conservatism, even if they are outside the overall general concept.

24

You consider yourself a “fiscal conservative”; did I guess right, Wrenching Spanners? What’s your definition of “fiscal liberal” one wonders? Maybe “One eager to waste money on transfers to the lazy; someone proposing high taxes but unaware that they will stifle business and innovation.” :stuck_out_tongue:

But let’s avoid Humpty-Dumptyism, ok? Think of another name for your fiscal philosophy; in present-day American dialect, “fiscal conservative” means “someone who is tired of teh gummint stealing his money; who favors the Starve the Beast agenda, cutting taxes in all circumstances; someone happy to squeeze the poor and other undeserving folk.”

Is my definition hyperbolic to make a political point? Sure. So is yours.

25

Your rant is off-topic, and indeed off-thread, and normally I would just ignore the blather. However, I will answer one question for you. My definition of a fiscal liberal is someone to the left of me who has more progressive politics, but still believes in government restraint, budgets that eventually balance, and fiscal policies based on math instead of impulsive emotional outbreaks and fairy dust. Basically, intelligent centre-left types as opposed to the other sort such as Alexandria Ocasio-Cortez and the backers of the Green New Deal. Tying this post back to the OP, I think fiscal liberals would probably back Trump’s ideas for economic stimulus payments, but they’d like to see the figures that justify them, and the future effects on US federal spending and revenues. As for the far-left economically-illiterate liberals? I imagine they’re in conniptions over the conflict between automatically opposing anything Trump says or does and the circumstance that they would support the payments if they were coming from President Obama, and those liberals are generating bile due to their emotional conflict.

26

Your analysis of “far left liberals” seems derived from Fox News and Rush Limbaugh. It certainly doesn’t match me (if you count supporting politicians like Bernie and AOC as qualifying me) and the vast majority of the Bernie/AOC/etc. supporters that I know. In this kind of emergency it’s trivially easy to support a stimulus and emergency relief, even coming from Trump, at the same time as advocating that far more should be done than what has been offered so far (as well as recognizing the many massive failures of the Trump administration in preparing for this emergency).

27

This is not Keynesian economics. In Keynesian, during slow times the government borrows to spend. In the theory, this will prime the pump and restore the private sector’s faith in the economy which will then began to grow again since whatever spooked the economy will have passed. Keynesian economics is designed to fix demand shocks and famine is a classic supply shock.

28

Thanks. I should have realised that the far-left liberal solution to their conundrum of agreeing with Trump would be to want to spend even more. I’d ask how you plan to pay for the additional spending, but I don’t want to turn this thread into a debate on a wealth tax or some other form of soaking the rich.

29

What the fed could have done to save the country from the Great Depression was not being more active. There is no such thing as a passive or active monetary policy, only appropriate and inappropriate. Friedman was therefore not asking for a more active role for the government or the Fed but for the Fed to do its job better.

30

Fiscal conservativism is not just no deficits, it means that the government spends as little as necessary and only taxes enough to cover its spending in the least distortionary way possible.

Economic stimulus can be fiscally conservative if there really is a demand shock and not a supply problem. The sudden loss of employment from people in the hospitality industry qualifies as a demand shock so it could be fiscally conservative to send checks to everyone to temporarily goose demand.

31

Blather? You wrote this:

Here you effectively define “fiscal conservative” as someone who “analytic[ally] reviews [probable outcomes to maximize] the long-term economy.” TL;DR: “A fiscal conservative is someone smarter than a liberal.” Sorry. This Humpty-Dumptyist arrogation of a definition is smug and pretentious word-play.

32

Yes, pretty much this. Rapid government bloat paid for with higher taxes on the citizenry is not ‘fiscal conservatism’, even if it doesn’t result in deficits. Fiscal conservatism is about being a good steward of the public’s money. Avoiding huge deficits is just one part of it.

A fiscal conservative might even argue that a good reason for fiscal conservatism is so that the government has room to spend during times of real emergencies. If you suddenly need to prop up the economy during a pandemic or prepare for a war, it’s a lot easier if you have a surplus budget and a small debt. It’s also easier to stimulate the economy if you haven’t already goosed it with artificially low interest rates and huge money pumps during the good times to eake out another few tenths of percent of growth, as Bush, Obama and Trump have all done.

33

Statement being discussed:

Response:

My counter-response:
The US economy is going to undergo severe contraction during the second quarter of 2020. There may be some bounceback during the third and fourth quarters of 2020, but US GDP for 2020 will almost surely be lower than for 2019. The economic stimulus payments are meant to reduce the second quarter contraction and support the bounceback. In my opinion, that’s sound economic policy. However, I don’t believe the payments fall under the umbrella of the general concept of fiscal conservatism. Drastic measures don’t coincide with a keep-it-steady approach.

However, a different way of looking at the economic stimulus payments is to try to compare their forecasted long-term effect against the forecasts if no action was taken. These forecasts would have to account for the costs of the economic stimulus payments which will mean an increased government deficit, higher debt payments, and eventual reduced future spending. The news I read had the payments being announced by the US Treasury Secretary.

I’m presuming that economists at the Treasury Department were creating and reviewing models and forecasts of the economic stimulus measures prior to the announcement. It’s more or less their job to do so.

I haven’t seen any details regarding the Treasury Department’s economic forecasts regarding stimulus vs no-stimulus. If the forecast is that the long-term economic effect of a stimulus package would be worse off than the long-term effect of doing nothing, then the decision to implement a stimulus package anyway would not be a fiscally conservative decision. It would be one based on political or emotional considerations. However, if the long-term economic effect is better off, then it falls under the principle of planning for the long-term. So while the economic stimulus payments wouldn’t adhere to the general concept of fiscal conservatism, they wouldn’t be “simply utterly at odds” with all the underlying principles of the concept.

34

My objection was not to your prescription. Had you written “I consider myself a fiscal conservative but I would advocate …” I’d probably have replied with agreement.

My objection was to the way you usurped the term “fiscal conservative.” Exaggerating slightly to make my point clear, you implied that “A fiscal conservative is someone who carefully analyzes future developments; someone who is flexible emough to choose the best …” Blah blah blah. Presumably inn contrast to “a fiscal liberal, who jumps reflexively without careful reflection …”

Yes, I know I’m putting words in your mouth in exaggeration; but I do it to ensure my point is clear. You have, in effect, defined fiscal conservative as someone who is smarter than others. What’s the term for that sort of debate tactic?

35

I basically agree but it’s important to point out that what republicans are advocating now goes against conservative fiscal orthodoxy. If you look at recessions in the 19th Century, any stimulus came from the private sector. The governmental response was more in the form of debt forgiveness and appropriations to underwrite the construction of infrastructure. In the Panic of 1857, there was emphasis on reforming the system but no relief for individuals. There was expansion of money supply in later recessions that century (1873-1896), but that was more in the form of monetary policy, not direct cash transfers or direct stimulus. Even during the Depression, Hoover inexplicably taxed and imposed tariffs while largely resisting the urge to have direct payments to households. Had he done the opposite, he would have forever changed the course of political history.

If you really believe the markets will fix the problem, you let the invisible hand do its thing. To intervene is to acknowledge that markets fail under certain circumstances, and that there are times when the strong arm of government is required in order to prevent an economic crisis from becoming a political crisis - that’s why governments get involved.

36

The correct response to a recession is to match the response to the cause. If the problem is monetary then a monetary response is appropriate and since government control the monetary supply it necessarily means governmental response. If the problem is a supply shock than there is very little a government can do. The great depression showed how little fiscal stimulus does. Hoover doubled the federal budget and that did not work, since the problem was not a lack of demand but a lack of money and worry about Germany.

In the current situation, the there is nothing that can be done to prevent a recession but many think that fiscal stimulus will allow the status quo ante to be restored once the quarantines are broken. Since this is an unprecedented circumstance, the labels of fiscally conservative vs liberal mean very little.

37

Ah yes, Trump the fiscal conservative, whose gone bankrupt 4 times, increased the deficit by $3 trillion in as many years- and when confronted by his advisors with charts showing a fiscal crisis in 2024, said, “Yeah but i won’t be here.”

38

“Fiscal Conservatism” does not equate to “fiscally responsible” nor anything to do with Keynesian economics. Fiscal conservative is a nice sounding term but not an economic one, or wasn’t anyway. IIRC it became popular about 20 years ago as a way to justify supply side voodoo-nomics, big corporate tax cuts, top 5% tax cuts, unfunded medicare programs thrown out to senior citizens and cut funding to the welfare queens/public schools/food programs/health programs and anything else the wealthy didn’t benefit from.

39

The two real fiscal conservative in recent US history were somewhat ironically George HW Bush and Bill Clinton. The former agreed to a deal which broke his promise about raising taxes and the latter made a very conscious choice of deficit reduction over a big public investment push early in his first term. Ultimately it was Clinton who with a combination of tax increases and defense spending cuts along with domestic spending restraint actually managed to balance the budget.

Not coincidentally this was an an era of relatively high interest rates which put pressure on politicians not to allow deficits to get truly out of control. By contrast the relatively low interest rates of the 21st century has made deficit reduction much less urgent. There is a decent case to be made that this is the right time for a once-in-a-generation deficit financed big push towards a low carbon infrastructure system. A Green New Deal so to speak though led by people who actually understand economics and technology rather than the likes of AOC.

40

I’ve never seen a definition of ‘fiscal conservative’ that wasn’t either a Humpty Dumpty one like Wrenching Spanners tried to use, or that doesn’t apply at all to modern conservatives. I would say that a ‘fiscal conservative’ under any reasonable definition of the term would strongly favor paying less for healthcare that provides more benefits for more people (including early detection and treatment of a pandemic), but as far as I’ve seen ‘fiscal conservatives’ angrily resist any kind of Universal Health Care plan.

If ‘fiscal conservative’ just means something like ‘doesn’t want to spend money helping poor people, often likes to spend money to hurt poor people and minorities, is fine spending masses of money on rich people and foreign wars, and whines about the deficit when democrats are in power’ then a lot of Republicans are fiscally conservative. But I don’t think that’s the definition anyone who says they’re fiscally conservative wants to use.