Does a brief shutdown of the government, and an accompanying minor reduction in government spending, help or hurt the economy? I start from the proposition that all wealth is created by the private sector while much government spending is wasted; and from the observation that the countries with the lowest government spending as a percent of gdp (Singapore, Switzerland) have the most successful economies, while those with the highest government spending as a percent of gdp (Cuba, North Korea) have the least successful economies. To improve an economy's performance, cut government spending!
But the government shutdown has brought out a flood of ludicrous economic nonsense somehow attributing the economy's ongoing poor performance to the shutdown and accompanying slight reduction in government spending. Most of the nonsense falls into the categories of either fake Keynesianism or the uncritical acceptance of the fraudulent government gdp methodology that counts all government spending as a 100 cents on the dollar increase in gdp.
Just a few examples to prove I'm not making this up. The New York Times graces us with a long analysis piece on October 18 titled "Shutdown to Cost U.S. Billions, Analysts Say, While Eroding Confidence." What analysts exactly? How about IHS Global Insights:
“The three weeks of government shutdown will cost the economy $3.1 billion in gross domestic product from lost government services,” estimated Paul Edelstein and Doug Handler of IHS Global Insight, an economic research firm. “There will also be some impact from lost private-sector jobs tied to the shutdown, as well as a loss of consumer and business confidence resulting from the debt-ceiling showdown.”
The $3.1 billion is just total acceptance of the idea that reducing government spending reduces gdp dollar-for-dollar -- not really a fallacy so much as a fraud. I guess government spending can never be reduced then! But the $3 bil is so paltry. S&P promptly upped the ante to $24 billion, according to this from Business Insider on October 16, quoting an S&P press release:
Or try this, from BBW on October 21's "The Tea Party's Pyrrhic Victory":
Fiscal policy is probably subtracting 1.5 percentage points from the economy’s growth rate in 2013, taking into account this year’s spending cuts and higher taxes, estimates Zandi of Moody’s Analytics.
It's the old "austerity" fallacy, mixing a benefit to the economy - spending cuts - with a detriment - tax increases. And this is before we even get to the screamers like Media Matters or Think Progress. Or Krugman -- I can't even read him any more.
I just hope no one here is reading this stuff and thinking that because these people have credentials they must know what they are talking about.
UPDATE, October 25: Don't know how I missed it before, but the classic of this genre is the op-ed by Steven Ratner in the New York Times on October 23, "The Biggest Economy Killer: Our Government."
[T]he sharp decline in the budget deficit, from $1.4 trillion in 2009 to $642 billion in the 2013 fiscal year that ended Sept. 30, has braked the economy at a time when it was already improving only slowly, as Tuesday’s jobs report demonstrated. According to estimates by the Congressional Budget Office, the pullback in spending by Washington — it declined in 2013 for an extraordinary second year in a row — together with higher taxes will cause the economy to grow by 1.5 percentage points less this year than it would have if the deficit had remained constant.
For those who don't know him, Ratner is known variously as the New York Times' favorite investment banker and as Obama's one-time "car czar." Those kind of credentials do not make one immune from falling for preposterous fallacies. Can somebody please tell this guy, and the other guys, that counting government spending at 100 percent in the gdp is a scam?