A new Bloomberg View (editorial) tells us that lack of fiscal stimulus (more government borrowing to spend) “is plainly holding back growth in the US, the European Union and Japan.”
This may be plain to Bloomberg, but it isn’t plain to us why doing more of what got us in trouble in the first place, borrowing and wasting money, will help us recover. Could we have a little evidence please?
Bloomberg admits that: “Japan, with public debt that is more than double the size of the economy, has little, if any, remaining fiscal capacity.” In other words, the Japanese government has wasted so much money it can’t borrow more. It’s tax revenues today barely cover interest costs, even at artificially low interest rates, plus social security.
This should be an object lesson in what not to do, but Bloomberg draws the opposite conclusion. It argues that “the US and Europe have room to maintain or increase short-term fiscal support, so long as clear, binding plans for longer-term restraint are in place… With this in place, fiscal stimulus in the short term would be feasible.”
This is pure fairy tale. No government can bind a future government to any course of action. What one legislature does, another can undo. So, the idea of binding long-term restraint is what Keynes called “nonsense on stilts.”
Bloomberg continues: “Skills atrophy and the will to work fades with prolonged joblessness.” Yes, but you can’t make a hangover better by ordering another drink.
And then concludes with one final bromide: “It is still possible to arrest this decay with better demand management (more “stimulus”) and measures aimed directly at the labor market, such as more support for job search, retraining and mid-career education.” This is more fairy tale. We are supposed to believe that the government knows what training is needed for workers.
All of this ignores the one thing that would actually restore our economy to health: ending government price controls, manipulations, and interventions, so that the price system can right itself and put people back to work.