Saturday, August 6, 2011

People at the St. Louis Fed Agree with Me Again!

This time it is Kevin L. Kliesen and Daniel L. Thornton, Economist  and Vice President and Economic Adviser, respectively,  at the St. Louis Fed who argue that our increased debt since the 1970s is the result of too much spending. Specifically "the rise in the national debt from the 1970s through 2007 is entirely a consequence of the federal government’s increase of expenditures without an offsetting increase in revenues to pay for that additional spending."

Kliesen and Thornton do argue that the cause of the current crisis is different in that not only has government spending increased sharply during the recession, revenues have also decreased significantly. On the one hand, that is certainly what happened to both government spending and revenue. The fact remains, however, that while the government cannot easily control for decreased incomes and their effect on the tax base during a recession, it has complete control over spending. The current debt crisis is merely a four-decade long spending fueled debt buildup coming to a nasty looking head.

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