Yesterday, John Taylor was on Bloomberg talking about how cutting government budgets and laying off government employees was actually expansionary. Though he was asked repeatedly by the hosts to describe the actual mechanism, he declined effectively saying ‘it just happened’. I guess he subscribes to the Pipi Longstocking theory of economics, ‘ANYTHING IS POSSIBLE WITH MAGIC’.
Alas, John, ‘it just doesn’t’. John wasn’t dumb enough to bring up Canada or Sweden. In fact, he also left out the UK where an experiment with austerity is dropping them back into recession. What Taylor says (cutting spending and government employment = jobs) is observably false, but that doesn’t stop him from saying it even if he does look absolutely foolish.
Let’s keep in mind that John Taylor is less an economist and more of an ideologue. He blames the government for the Bush Credit Crisis, which we know to be false, at least in terms of the CRA (but, though he doesn’t say it, the government’s decision to deregulate the banks was a primary driving force in the Crisis). He has a major bone to pick with Fannie and Freddie, without ever mentioning that the bad credits on their balance sheet came from Wall Street (Merrill, Goldman, Bear, JPMChase) and that they are, effectively, not being asked to make taxpayers whole on those defective mortgages, effectively creating the most massive taxpayer subsidy of private industry ever.
Taylor never quite gets around to how reducing demand in the overall economy (you know, by laying off hundreds of thousands of workers) is going to strengthen hiring. Again, it’s all magic.
This idea of expansionary austerity (a prima facie contradiction in terms) is almost as stupid a boogeyman as the idea that business aren’t hiring because of some nebulous ‘uncertainty’. Again, let me default to Krugman who makes rather short work of this dipshit argument that had to have been invented to please a focus group that had a collective IQ of less than 100…
Just so it’s really, really clear… BUSINESS WON’T HIRE PEOPLE UNLESS THEY CAN USE THEM TO SELL MORE STUFF.