Emperor, Please Put On Some Clothes

The emperor is most certainly stark naked before the public he's called together to see his "new clothes".

Who is this emperor? Today's emperor is more of a committee. The power players on the committee are the current office holders from the Republican party. Who sold them the clothes and are also the committee's most trusted advisers? That would be the "Chicago" school of dubious economists and similar Very Serious People who've claimed that we should fear nothing from cutting government spending because -- with the wonderful magic loom of "not crowding out" -- every item we remove from government spending will be replaced by an equal item of resurging private spending. For example, as recorded by Menzie Chinn, there's the claim from Mr. Brian Riedl of the Heritage Foundation that,

"Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another."

That there's some invisible clothing, that is. See, if you're a Very Serious Person, you'll see the magic clothing because only those silly, unworthy folks can't see the special invisible clothing that comes from reducing crowding out. Really. You believe us, right? Because if you don't, you must be one of those silly, unworthy folks.

Enter the child in the crowd, in this case played by various credible economists with good track records for accuracy: e.g., Paul Krugman and others who read our situation right and generally accurately predicted how things would play out from each move that's been taken. These folks -- like the child in the classic story -- have been unconcerned that pointing out the emperor's factual nudity might cause them to be seen as silly, unworthy folks by the powers that be. They see that the emperor is stark naked ... and, well, he's wrinkly and it's unappealing ... they're seeing sights that they'll never be able to un-see no matter how hard they try ... so they're going to darn well point it out in the hopes that he'll cover himself up with something real instead of these fake, imaginary garments from the Very Serious People.

I'm sorry, but Ricardian Equivalence is no substitute for honest clothing. Crowding out isn't going to be a significant factor in a demand-depressed economy such as the one in which we currently live. We can not expect that private spending will step up to fill the void if we cut government spending at this point. We can only expect that to leave us naked.