I have long argued that lower levels of government spending are good for prosperity.
This is why I have praised presidents who actually cut spending (such as Harding and Coolidge) and also lauded presidents who restrained spending (such as Reagan and Clinton).
Is it time to add Joe Biden to this list?
The obvious answer is no. After all, he wanted a $5 trillion a expansion of the welfare state in his first budget. And many of the bills in his first two years (such as the fake stimulus and the misnamed Inflation Reduction Act) increased the burden of spending.
However, I was very surprised that Biden recently made comments that could have been delivered by Reagan.
As reported in the New York Times by Jim Tankersley, Biden asserted that a big spending cut was pro-growth.
Mr. Biden expressed confidence earlier this month that any deal would not spark an economic downturn. That was in part because growth persisted over the past two years even as pandemic aid spending expired and total federal spending fell from elevated Covid levels… Asked at a news conference at the Group of 7 summit in Japan this month if spending cuts in a budget deal would cause a recession, Mr. Biden replied: “I know they won’t. I know they won’t. Matter of fact, the fact that we were able to cut government spending by $1.7 trillion, that didn’t cause a recession. That caused growth.”
For what it’s worth, I agree with Biden that a $1.7 trillion spending cut is pro-growth.
But don’t get too excited. Biden’s remarks probably show that he is easily confused, not that he suddenly understands the economics of fiscal policy.
- According to numbers from his own Office of Management and Budget, there has not been a $1.7 trillion spending cut.
- Spending did drop by about $550 billion between fiscal years 2021 and 2022 as pandemic-related spending wound down.
- Biden presumably was talking about red ink, which did decline by about $1.8 trillion between fiscal years 2020 and 2022.
In other words, he didn’t understand what he was saying and he didn’t mean what he said. Biden’s endorsement of big spending cuts is akin to Obama’s statement that 20 percent for government is too much.
P.S. The main focus of the New York Times article was to address the silly concern among Keynesians that potential spending restraint in the debt-limit deal might hurt the economy. It would have been nice if the reporter actually talked to someone on the pro-market side of that debate.
P.P.S. The big challenge for Keynesians is real-world evidence.
