The enormous public cost of fighting the global crisis is haunting governments and unnerving investors.
Even as President Barack
Obamadeclared Tuesday that the United States must continue to “spend our way out of this recession,” international ratings agencies sent shivers through markets with warnings that spiralling budget deficits and soaring debt levels are putting sovereign ratings at risk.
Analysts do not expect a return to fiscal stability soon, and some countries continue to rely on stimulus spending to support fragile economies.
"To support fragile economies." The Keynesian fallacy has become embedded in the language. We passed the stimulus, unemployment rose, and yes the economy recovers a bit, as it always tends to do with or without "support," but weakly and not before sinking further. You'd hope this experience might induce journalists to rephrase a bit, to write, say, that "some countries continue to burden fragile economies by increasing spending." But the Keynesian fallacy is too embedded in the language.
It should be noted that the only real empirical "success" of Keynesianism is that military spending does seem to raise GDP. But there's no need to appeal to a Keynesian model to explain that. Suppose the government spends $X in a purely wasteful manner: will you work more or less? Probably more, because since the government, now or later, is going to take some more of your money to pay for the $X expense, you're prospectively poorer, so your marginal value of money relative to labor rises and you work more. War makes us poorer but raises GDP because we have to produce more to make up for what we destroyed. Keynesian macro is theoretically flawed and has scant if any empirical support. But how do we purge it from casual journalistic language?