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Does government spending help mitigate a recession?

During recessions, a government can try to increase employment and stimulate the economy by spending the taxpayer's money on government projects. This strategy is based on Keynesian economics, famously applied in Franklin Roosevelt's New Deal in 1937 during the great depression, and now resurging in the wake of the global economic crisis. More liberal minded economists believe that the best way to stimulate the economy is by lowering taxes.

Implications to Other Questions

Was the US government's $700 billion bailout ultimately good for the taxpayer?

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Experts In Macroeconomics

Paul Krugman Nobel Laureate in Economics

Mostly Agree

There are certainly legitimate arguments against spending-based fiscal stimulus. You can worry about the burden of debt; you can argue that the government will spend money so badly that the jobs created are not worth having; and I’m sure there are other arguments worth taking seriously. What’s been disturbing, however, is the parade of first-rate economists making totally non-serious arguments against fiscal expansion. ...

The Dirty Enemy Pitch

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19 Jan 2009 Source

Experts In Economics

Nouriel Roubini Economics Professor

Agree

[To avoid an economic crisis] you have to have a set of concerted, coherent policies done not just by the U.S. but by Europe, Japan, China and everyone else. The credit crunch is just massive. One thing that's needed is much more aggressive monetary easing. The second dimension is that you need much more fiscal stimulus — in the countries that can afford it — that is front-loaded. The U.S. [stimulus package] is $800 billion, but [unfortunately] only [a mere] $200 billion is front-loaded.

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03 Mar 2009 Source

Experts In Politics

Barack Obama United States President

Agree

The recovery plan and the financial stability plan are the immediate steps we're taking to revive our economy in the short-term. But the only way to fully restore America's economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world. ... history tells us [that] government [shouldn't] supplant private enterprise; it [should] catalyze private enterprise.

The History Repeats Pitch

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24 Feb 2009 Source

Disagree

Experts In Macroeconomics

Edward Prescott Nobel Laureate in Economics

Disagree

I don't know why Obama said all economists agree on [the need for a stimulus bill] - they don't. If you go down to the third-tier schools, yes, but they're not the people advancing the science.

The Consensus Pitch

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10 Feb 2009 Source

Experts In Economics

Milton Friedman Iconic Economist of 20th Century

Disagree

[During the great depression] people came to believe that free market capitalism had failed. ... [So] if private spending [wasn't] enough to maintain full employment, then government could always step in and spend enough to make up the difference. The theory of pump priming was born. [It] was a godsend to politicians who had been grasping at any expedient [,who] throughout the ages, had been only too willing to spend money provided they didn't have to tax their citizens to pay for it.

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01 Jan 1980 Source

James M. Buchanan Nobel Laureate in Economics

Edward Prescott Nobel Laureate in Economics

Vernon Smith Nobel Laureate in Economics

Disagree

[More] government spending is [not] a way to improve economic performance. [It] did not pull the United States economy out of the Great Depression in the 1930s [,nor] solve Japan's "lost decade" in the 1990s [,nor] will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

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15 Feb 2009 Source

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0 Points JGWeissman 27 Mar 2010 Stance on Question: Disagree

Money is a tool for facilitating transfer of economic goods. It is not wealth itself, but a representation of wealth. Government spending, whether funded by taxation, inflation, or borrowing against future taxation or inflation, reduces the connection between money and wealth. The government spending effectively steals buying power from those who produced the wealth, and uses it to demand different economic goods that are actually worth less to the economy. Government spending destroys the connection between what people want and what the economy produces. It is a drain on the economy and will prolong recessions. Worry less about money and more about wealth.

0 Points Benja 28 Mar 2010 Stance on Question: Disagree

To rephrase the question, what is better:

1) Lower taxes, keep government spending constant.
2) Keep taxes constant, increase government spending.

My intuition is '1' is the best, because it's less distortionary. So why does '2' occur? Perhaps it's the "Politician's syllogism":

We must do something
This is something
Therefore, we must do this.

From Yes, Minister, here.

0 Points JGWeissman 28 Mar 2010 General Comment

The best strategy (that the government is actually capable of implementing) for government spending is to not try to optimize its effects on the economy, but to only try optimize for purchasing, at the best available prices, the goods and services the government needs to fulfill its functions.

The politician's syllogism both frightens and amuses me.

0 Points Anonymous 22 Jun 2010 General Comment

We have a dam good governor from va in there and if all would listen to warner & webb maybe all will understand they are for the little people needing help right now Unemployed, I speake for all virginians when I say there the best thing that happen to the white house since Kennedy? Go guys we all trust you to help us.