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Obama Argues that Ramping Up Spending Can Shrink the Deficit



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Most liberals mock the supply-side idea that, in certain cases, tax cuts can actually increase revenue by spurring economic growth. So what to make of the Democrats’ sudden embrace of the inverse of that argument? At Brookings today, the president argued:

There are those who claim we have to choose between paying down our deficits on the one hand, and investing in job creation and economic growth on the other. But this is a false choice. Ensuring that economic growth and job creation are strong and sustained is critical to ensuring that we are increasing revenues and decreasing spending on things like unemployment so that our deficits will start coming down.

The economic literature supporting the link between tax cuts and growth is fairly solid. The link between government spending and growth is not nearly as well-established, relying more on Keynesian theories than actual evidence. In fact, there is quite a bit of evidence that the opposite is true: Reducing the size of the government’s footprint in the economy would be conducive to growth.



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