Why Government Spending Fails

James Juliano Insights

When will they ever learn? If government spending worked, then Latin countries would be rich.

How Spending Sapped the Global Recovery, The Wall Street Journal

The problem in an economic contraction is not a shortage of demand, although it does seem that way. The real problem is always barriers to sufficient supply. A supply shock can be caused by natural disasters, but normally it is caused by bad economic policy such as excess government spending. As Milton Friedman taught us, all spending is taxation whether it is now or in the future. The government spending multiplier so often touted is actually negative because of substitution effects at the margin. No one says it better than Milton Friedman himself.

His video below on government spending and the “free lunch myth” is a must watch.

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