Accounting Identities and Straussian Economics


Like Paul Krugman and Brad DeLong I’ve been a bit puzzled to see the number of seemingly well-qualified economists arguing that debt-financed government spending necessarily crowds out private investment on a one-to-one basis. I’m pretty sure this was covered in the AP econ class I took in high school. The giveaway phrase in ordinarily English seems to be “the money has to come from somewhere” which elides the difference between money just sitting around (“somewhere”) and circulating via economic activity.

Read the linked posts for an explanation, or else see this old Paul Krugman article offering a parable about baby-sitters that both illustrates the point and shows that this isn’t just an idea liberals made up last month to justify the Obama administration’s spending plans.

My best guess is that the leading figures making this argument aren’t actually confused about the issue so much as they are engaging in a Straussian gambit of some kind.