Does the return on government spending triple in a Depression?


Brad DeLong

, a Berkeley economist, thinks that different rules about government spending and deficits apply during a Depression. When the economy is doing fine, he estimates, $1 of government spending yields 40 cents in extra production and related jobs. But in a Depression, the $1 yields $1.50, more than three times what it would under good conditions. With the federal budget deficit at a record $1.4 trillion, DeLong's argument would suggest that Dick Cheney was partially right when he said, "Ronald Reagan proved that deficits don't matter."

Originally published