From EJ Antoni June 2023 argument that the US was in recession:
Every dollar the government spends must first be taken from the private sector. Whether the government pays for its spending through explicit taxation, or the hidden tax of inflation, or through borrowing, public activity crowds out private activity.
In short, government spending takes away as much or more as it adds to the economy.
This is a variant of Brian Riedl’s 2010 statement:
Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.
I get the feeling the Heritage folks just recycle text. This argument is also sometimes termed “The [UK] Treasury View” of the Exchequer in 1929.
This interpretation is consistent with either a Classical model (with perfect foresight), or a New Classical Model (with equilibrium rational expectations).
I might mention that even in real business cycle models, characterized by Neo-Ricardian Equivalence, increases in government spending will increase output (although this is welfare decreasing). I would’ve expected that Dr. Antoni would know better, since he should’ve taken Econ 661 and Econ 761 (Macroeconomic Analysis I, II, respectively).
The assertion Dr. Antoni makes is not valid if prices are sticky, and/or there is slack in the economy. For more, see here.
