Italy moves to more government spending as the solution for economic growth

Italy is going back to the policies that got it in trouble to begin with.  I wasn't a fan of the higher taxes and it would have been nice to see some real cuts in government spending, but this will be worse.  From the NY Times:

Mr. Letta is part of a growing European effort to question the austerity policies championed by Germany as the medicine to deal with the economic malaise in Europe, where unemployment has surpassed Great Depression levels in some places in the south and recession is creeping toward the once-resilient economies in the north. . . .

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New piece in Investors' Business Daily: "Obama's Sequester Cuts Are A Mere 1% Of Budget"

My new piece starts this way:

President Obama is almost breathless predicting "devastating" consequences if the sequester trigger is pulled. 

He warns the cuts "will hurt our economy ... add hundreds of thousands of Americans to the unemployment rolls. ... The unemployment rate might tick up again." 

But will a $44 billion cut in spending out of a $3.8 trillion budget, a mere 1%, really be a "meat cleaver approach" that will "eviscerate" government programs? 

Obama frightens people by pretending that the $1 trillion cut takes place right away rather than being spread out over 10 years. 

He has taken almost every possible position on spending and taxes. During the 2008 presidential campaign, Obama continually promised to "cut net spending" and make government smaller. The stimulus was promised not to "raise projected deficits beyond a short horizon of a year or at most two." . . . .

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Daily Caller piece: "Obama’s spending failure"

My piece starts this way:

According to President Obama, cutting government spending will “certainly slow our recovery.” Over and over again, he has described the sequester’s threatened $85 billion cut in spending out of a $3.8 trillion budget as “devastating.” But that represents a mere 2 percent cut in spending. Obama frightens people by pretending that the $1 trillion cut takes place right away rather than being spread out over 10 years. 

Sounds like more of the same. During the 2008 presidential campaign, Obama continually promised to “cut net spending” and make government smaller. The stimulus was promised not to “raise projected deficits beyond a short horizon of a year or at most two.” Yet, now during the fifth year of Obama’s presidency, we are told that we can’t cut spending, that we need even more government “investments.” . . .

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Obama's state of the union heavy on Keynesianism

Well, given how well Keynesianism has been working out so far, it was understandable that Obama would keep pushing it further.  From The Hill newspaper:

The economy will remain Topic A, and Obama’s speech is expected to warn of the danger automatic spending cuts known as the sequester pose to a slowly improving economy. At the same time, Obama will give due weight to other priorities such as immigration and gun control. . . .

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A note for me to remember some dumb economics: Stiglitz on inequality

This claim is based on the crazy argument that people don't spend all of their money.  It is almost as if wealthy people are digging a hole in their back yard and burying the money there.  But wealthy people's money doesn't just disappear.  If they put it in the bank, it is loaned out to others.

“What sustains the American economy is consumption, and the people at the top spend on consumption a smaller fraction than those at the bottom. In fact, those at the bottom have to — to get by — spend about basically 100 percent. So when you move money from the bottom and the middle to the top, overall spending gets constrained, and that weakens the economy,” economist Joseph Stiglitz said on MSNBC's "Up with Chris Hayes" . . .

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Keynesian claims about Sequestration

Will spending cuts really government spending cuts hurt the economy?  Yet, despite what Keynesians believe the evidence doesn't support that.  From The Hill newspaper:

A sharp decline in defense spending led the U.S. economy to contract at the end of 2012 by 0.1 percent, but it did little to change the fight over further cuts to the Pentagon set to begin in March. 

The White House used the report to lash out at Republicans, arguing the GOP should agree to a deficit-reduction package that includes spending cuts and tax hikes to replace the $85 billion in scheduled cuts known as sequestration. 

“Our economy is facing a major headwinds, and that's Republicans in Congress,” White House press secretary Jay Carney said. “It can't be 'we'll let sequester kick in because we insist tax loopholes remain in place for corporate jet-owners.' ” 

Republicans counter that they agreed to raise tax rates on households with annual income above $450,000 in a deal earlier this month and that they will not raise taxes again. Instead, they say President Obama must accept spending cuts. . . . .

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