Reisman: … He's definitely wrong. … It's not deficits in and of themselves that promote spending, although he … seems to think that a dollar spent by the government is somehow more beneficial than a dollar spent by you or me, which is ridiculous. What people really have in mind, to advocate this position, is that the government will run at a deficit and not borrow from the general public … but will manufacture the money -- print it. So they'll enlarge total spending. So it's this mentality I would think more than anything else that's been responsible for our problems with inflation for the last 65 years or so. Every year, there is more and more money out there. … The rise in spending just outstrips the increase in production and the supply of goods, and so prices continually rise. …
Elder: (This article asserts) you can spend government money to get us out of a recession.
Reisman: That's definitely the idea that someone would come away with, and one would have no idea that one would have an alternative way to get out of the recession or depression or what one got us into in the first place. What put us into this recession and what causes every recession is precisely a preceding policy of inflation … the tremendous stock market boom fed by the Federal Reserve's rapid expansion of money. There was additional money poured into the stock market, and that … raised prices, and when they decided not to continue that … then the market fell. It would not have had that terrible fall if it had not had this artificial rise first, engineered by the Fed … a major aspect of inflation itself.
Elder: The (article) quotes an economist from the so-called "non-partisan" Brookings Institution: "Tax hikes do less damage to the economy during a downturn than an equivalent amount of spending cuts." What does that mean?
Reisman: … Keynesians argue that if you increase government spending by a dollar and increase taxes by a dollar, that serves to increase national income by a dollar. And that's what's being argued here. The joke of this argument is that the Keynesians are really very ignorant of aggregate economic accounting. … It's actually possible that by raising taxes a dollar and government spending a dollar, you can raise national income a dollar. But the way that would happen is only if the taxes were paid with funds that otherwise would have bought capital goods, like machinery and equipment.
Elder: Why the widespread myth that FDR's policies got us out of the Depression?
Reisman: I think that fits with the statist preconceptions. If you view the government as some kind of deity and you think it's omniscient and omnipotent, then that's your basic expectation. …
This interview took place seven years ago. Days ago, the libertarian think tank Cato Institute took out a full-page ad. It listed more than 200 economists -- by name -- who reject more government spending and instead urge tax cuts and smaller government. The full-pager ran in "minor" newspapers, such as The New York Times, the Los Angeles Times and The Washington Post.
So, President Obama, please read these economists' "disagreement." Whip out your BlackBerry.