A Fatal Conceit

I was watching BloggingHeads, and this week's liberal vs. libertarian banter included Ann Lowrey, who basically argues we should spend more on everything (presumably via the logic of the government multiplier, which implies a free lunch to deficit spending). Alas, economists are responsible for allowing this kind of wishful thinking to be intellectual defensible (though, I believe, wrong).

There's this gem from Matt Yglesias, who claimed an attempt to limit government spending as a percent of GDP was 'idiotic', back in March 2010:

The appropriate level of overall government spending should be determined by adding up the level of specific spending on worthwhile things. Programs that are ineffective, or whose impact is small relative to the impact of the taxes needed to pay for them, should be cut or eliminated. Programs that are good should be maintained or expanded. Settling on an arbitrary number first and then making unspecified cuts to reach the target is ridiculous.

The key issue is the presumption that ineffective programs would be cut or eliminated. This happens only very rarely, and via strong opposition. AFDC and busing were only tossed because of Republican action, there was no internal re-assessment by the original Democratic proponents. Basically, no political movement admits when in oversteps, making it very rare.

Amtrak? NASA? The Department of Education? The mohair subsidy? Who, after the housing crisis, would extend mortgages to borrowers with only a 3.5% down payment? The US government, of course, who is quickly becoming the primary guarantor for homebuyers with mortgages under $300k! The government, like most liberals, think the solution to any failed policy is to double down.

Once government gets into something, the size of the loss is irrelevant, because there's always some speculative spill-over effects that can act as a pretext to maintain some patronage system.