I wrote yesterday about commentary and economic evidence coming out of the United States about how the effect on confidence might mean cuts in spending boost economic growth. In his column for the New York Times David Brooks takes up the same topic. The whole article is worth reading but this is a particularly powerful section:
"In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon."
He then points to two academic papers which come to the conclusion that fiscal adjustments can lead to higher economic growth. It is becoming very clear that anything but strong action to bring down deficits now is the path to ruin. From the outset the case for a Keynesian attempt to borrow our way out of the recession was weak. It is becoming completely untenable.