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The Situation Has Developed Not Necessarily to Ireland's Advantage

When would it be time to judge the Irish experiment in preemptive fiscal austerity to be a failure, Tyler?

Tyler Cowen:

Marginal Revolution: One green shoot: "Ireland climbed out of recession on Wednesday with the economy returning to growth in the first quarter [2.7 percent], after suffering one of the deepest downturns of any advanced industrialised economy." Don't get too giddy with optimism: the Irish economy had declined fifteen percent.  Still, it's far too early to judge the Irish experiment in pre-emptive fiscal austerity to be a failure.

You know, this presumption that the case that government buying more things in a time of mammoth unemployment and stunning excess capacity increases employment needs to be made--it baffles me.

The same people who claim that increases in government spending don't increase employment also claim that increases in private spending do increase employment: that if only the extra demand came from some household or some company it would be fine. And they never give any reason why the government's spending isn't as good as anybody else' in boosting employment.

Well, with the exception of Friedrich Hayek. He thought he had a theory by which all "unwarranted" decisions to increase spending raised unemployment. Robert Skidelsky:

Hayek came to Cambridge in January 1931 to give a one-lecture version of his theory to the Marshall Society before starting on his LSE lectures. His exposition was greeted with complete silence. Keynes was in London, but Richard Kahn, who was in the audience, felt he had to break the ice. 'Is it your view', he asked Hayek, 'that if I went out tomorrow and bought a new overcoat, that would increase unemployment?' 'Yes,' replied Hayek, turning to a blackboard full of triangles, 'but it would take a very long mathematical argument to explain why.

--Robert Skidelsky, John Maynard Keynes: The Economist as Saviour, 1994, p. 456. [Quoted from Kahn, The Making of Keynes's General Theory, p. 182.]

And Paul Samuelson:

For my money more to the point was Richard Kahn’s simple oral 1932 statement: "If Hayek believes that the spending of newly-printed currency on employment and consumption will worsen our current terrible depression, then Hayek is a nut."

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