Am I endorsing Ricardian equivalence?

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No. Robert Barro is about a million times smarter than me, but I shamelessly continue to think that his thesis is unlikely.

I am stating two beliefs about the economy that are related, but can be independently judged as theories in their own right:

1) Government spending lowers output and/or growth. But at American levels, it doesn't lower it as much as most libertarians/conservatives think; if we slashed government spending in half, the economy wouldn't suddenly grow by a third. It wouldn't even suddenly grow an extra 2%. There are many, many constraints on human economic activity, and at American levels of taxation, taxes are not the largest of those constraints.

2) For any given level of spending in the current American economy, the difference between taxation finance and debt finance of said spending is not large enough to be easily distinguished from economic noise. What matters is the level of spending, not the way that this spending is financed. This would not be true if any number of conditions obtained--if we were prone to imposing punitive capital taxation, for example, or borrowed large sums of money in other currencies. But these things are not true of the current American economy.

How you finance the spending may matter if the method of financing alters the amount of spending that politicians do. But I think the jury is still out on which method of finance is the more effective constraint on government spending--and to be sure, it may turn out that here, too, there just isn't much effect one way or the other.

I think there are economic policies that matter a lot for economic growth, but the impact of fiscal policy really seems to be shockingly small, especially compared to the high hopes once held for it on both sides.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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