Krugman contends that such spending generates economic activity that otherwise wouldn't occur, and thus creates growth. President Barack Obama essentially endorsed the same idea in the jobs plan he announced last week. CNBC's Larry Kudlow, among others, makes the contrary case, that such spending reallocates economic activity to less efficient areas, thereby slowing growth.
This month, we mark an anniversary for the philosopher who first articulated the Broken Window concept -- and a few other suddenly relevant economic ideas.
The anniversary is that of a desperate trip to Paris made in September 1850 by a French politician and economist with an unshakeable cough named Frederic Bastiat. France was a republic -- that month. But for more than half a century, the country had lurched from revolution to republic to coup or revolution again. By 1850, many Frenchmen believed that, economically and politically, their country had only two choices.
The first was anarchy and guillotines. The second was an authoritarian government, preferably led by someone named Napoleon, whose job was to keep the streets quiet by playing the hero and handing out bribes, directly or indirectly, to businesses, farmers and public officials. Government spending was the necessary tool of such a system.