In my column for The Week, I write about how even wasteful government spending is better then no spending at all:
Government spending is often wasteful. But it’s still spending.
When the Department of Waste, Fraud & Abuse buys toothpicks for the office cafeteria, that money is received by somebody. The recipient then buys other goods and services, circulating money through the economy. The money may not flow to its highest and best use, but it still flows.
What happens when the government money stops flowing?
If the economy is growing normally, then the ex-government money can be returned to the taxpayers who will spend it on something else, probably something more useful.
But what if the economy is not growing normally?
President Obama’s 2012 budget, submitted in February of this year, proposed $33 billion in cuts from federal agencies as part of an overall five-year freeze in non-defense discretionary spending.
Since then, the scale of proposed cuts has grown bigger and bigger and bigger. These cuts may not ever materialize. But if they did — you know, that’s real money they’re talking about. If the government were to spend less at a time when households and businesses still hesitate to spend more, well then … you don’t have to be an Orthodox Keynesian to recognize that less money would be spent.
And spending less money has real-world consequences for real-world suppliers and vendors.
So here’s the question:
If government is to cease providing extra demand to the U.S. economy sometime after, say, August 2 of this year, who will provide that demand instead? And how?