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Beware Dr. Galbraith’s Snake Oil

Even in the face of the Greek situation, some economists continue to argue that deficits don't matter.

by
Paul Hsieh

Bio

May 31, 2010 - 12:03 am
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As the Greek welfare state collapses, citizens there have been rioting over cutbacks in social spending necessitated by mounting government debt. The rioters apparently fail to recognize that whenever a government routinely promises to spend more money than it has, then eventually it will be unable to fulfill those promises. Many Americans worry that we will soon be facing similar troubles at either the state (e.g., California) or national levels.

Yet some renowned economists, such as Professor James Galbraith of the University of Texas, are trying to convince us that the U.S. government should ignore our massive federal budget deficit and instead spend even more. Galbraith argues that calls for fiscal responsibility are “misguided” and that greater deficit spending will create greater prosperity.

Galbraith’s proposals are dangerous because they are based on the notion that you can get something for nothing. Unless we want to see a Greek-style collapse here in America, we must reject those ideas as economic “snake oil” and instead demand an end to our government’s fiscally irresponsible deficit spending.

James Galbraith is no street corner crank. Instead, he has a BA from Harvard and a Ph.D. from Yale, both in economics. He is a professor of economics at the University of Texas, Austin, and son of famous Keynesian economist John Kenneth Galbraith. Because of his impressive academic and intellectual pedigree, many Washington politicians and pundits take his ideas seriously. Hence, so must we.

In his recent article in The Nation, “In Defense of Deficits,” Galbraith argues the following points:

  1. The political push to reduce government deficits is economically misguided, based on an irrational “phobia” of deficits.
  2. If we want economic growth, we need more spending. Only banks and governments can stimulate spending because (in his words): “Governments and banks are the two entities with the power to create something from nothing.”
  3. We shouldn’t worry about the alleged impending bankruptcy of Social Security or Medicare — or of the U.S. government itself. Why? Because the government is the source of money and therefore can’t run out.
  4. Government debt is not really a “burden on future generations,” because it never has to be repaid. Each generation can just pass that debt onto the next generation, so there’s no problem.

Similarly, in his May 12, 2010, Washington Post interview with Ezra Klein, Galbraith repeats the mantra that the federal deficit poses “zero” danger to our country. Why? Because the government can’t ever run out of money, “just as a bowling alley does not run out of points.”

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