Paul Krugman once again defends an instance of deficit spending with the same excuse: it could have been worse. That's the same excuse used for FDR's policies, which failed to curb unemployment during the Great Depression - this time, it's Japan: almost twenty years of deficit spending have yet to produce any tangible results. But, then, it could have been worse, writes Krugman.
There is a reason deficit spending (which is not the same as a deficit produced solely by cutting taxes), combined with government intervention, does not work. In its extreme, socialism, a price system, as a mechanism for communicating information, does not exist, as Ludwig von Mises famously stated. Underlying this statement is the empirical observation that men (or women) manifest their wishes, needs, and priorities, through voluntary exchange. Centralized bureaucracies cannot substitute this information, much less the individuals' own prioritization of their desires. Stimulus spending, which supposedly covers needs that a market will not recognize, is bogus. Taxation (or borrowing, which will inevitably lead to taxation in the long run) drains the market of its resources and redistributes them against the wishes of the citizenry. This means that any initial appearance of growth cannot last, since the government-mandated products or services prove undesirable, cost-ineffective, and, eventually, unsustainable - and the business that produces these products or provides these services will have to fold, leaving its employees unemployed, its providers unable to recover their money, etc. In the meanwhile, many entitlements may have been established, burdening government finances for years to come. How can, then, sustainable growth come out of a planned (more or less) economy?