“Bet on Private Sector for Recovery Could Prove Risky” is the headline of a front-page story in today’s New York Times. I guess somebody forgot to tell the author that Keynesian economics aren’t working so well these days. Here is a sample:
In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.
Okay, there are two big points to be made here: (1.) Public sector spending has pretty much been proven a disaster-it’s brought no upswing in the economies around the world, unless you’re a government employee. (2.) Yes, there is risk in depending on the private sector. That is the nature of business-risk. Businesses that don’t perform go under in a genuinely capitalist system. People may suffer in the short term, but ultimately only the private sector can create prosperity. The public sector can only take money earned in the private sector.
The New York Times article makes another, in my opinion, misleading poing:
On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.
Stocks were a disaster worldwide yesterday-but you can’t really chalk it up to pessimism about further government spending. There were developments in China that are more likely contenders as the cause of yesterday’s selloff. Moreover, the New York Times seems to confuse government spending with economic growth.