The broad Keynesian misunderstanding regarding government spending is continuing.
Spending by consumers and businesses are the most important drivers of economic growth, but in recent years, government outlays have played a bigger role in supporting the economy.
The level of the federal component of GDP in the first quarter of 2019 was $78 billion, or 0.4%, lower than what forecasters expected it would be following the February 2018 budget deal….
The government is spending much less on disaster relief than it did in fiscal 2017, and a partial shutdown temporarily stalled outlays in January. Those factors explain about one-third of the missing stimulus, Mr [Ernie, an Evercore ISI economist] Tedeschi said.
No, that lack explains nothing at all about any “missing stimulus” except in the narrowest, purely statistical sense of a correlation having been found between two factors. Correlations don’t even prove a relationship, only seeming relationships: all, or nearly all, nickels have two sides—a head and a tails. All, or nearly all, pennies have two sides—oddly enough, also a head and a tails. That correlation shows nothing at all substantive about a relationship between nickels and pennies.
Beyond that bit of statistical trivium, it’s necessary to recall the real-world nature of government spending: every dollar that government spends must first be taken from someone else, and then carrying costs—middle man costs—must be deducted before passing it on. There is nothing at all stimulative about government spending, as even John Maynard Keynes understood: in his government-spending-as-stimulus theory, it was the sharp rise in government spending that he held to be stimulative, not its steady state. And beyond that, his “stimulus” was a purely price-inflationary stimulus, his spike being intended to come inside the ability of production to answer that spike in demand.
Indeed, if only because of those government middleman costs, steady state government spending is a net drag on the economy. An additional contribution to the drag is associated government borrowing, which competition for lendable dollars drives up the cost of money for private enterprises and private citizens. A third drag is the simple existence of Government spending: this crowds out private enterprises and private citizens by consuming resources that those citizens and enterprises would otherwise have consumed—while driving up the costs in the private economy of the remaining resources.