"There is no disagreement," said then-President-elect Barack Obama Jan. 9, "that we need action by our government, a recovery plan that will help to jump-start the economy."
During the last economic downturn -- seven years ago -- I interviewed economics professor George Reisman, author of the book "Capitalism: A Treatise on Economics." He reacted to a newspaper article that called government spending a "potent recession cure when administered properly."
Reisman: That is a view held by a large school of economists, perhaps the majority school, for the last 60 years or so. That's the Keynesian school, but there are other economists, like the Austrian school, which holds a very different position. In their view, an essential requirement to a sound economy is balanced budgets with small government. We want government limited to protecting life and property. The government should be attacking terrorists, providing police protection against common criminals, and that should be essentially it, and the people in an environment free from terror will proceed to provide for themselves economically. That has been the basic philosophy on which the United States was built.
Elder: I know you're not a journalist, but isn't it unfair to make (the "recession cure") statement … as if it's a fact?
Reisman: No, it is definitely not a fact, and it displays considerable ignorance which leaves out of account any alternative point of view, and in fact, it's easy to argue that deficits can pretty well worsen recessions with depression, because one of the main characteristics of any severe recession is widespread bankruptcies. Deficits contribute to that by withdrawing capital from availability for business. The deficits absorb savings, and those savings are then not available to be lent to business firms in need of credit, so more firms go under than would otherwise have gone under, and that worsens the depression or recession.
Elder: Is it too strong to say that this guy is simply wrong?