History shows us that government deficit spending reduces unemployment and boosts the economy.

Krugman, Paul October 29, 2011, 2:20 PM

http://krugman.blogs.nytimes.com/2011/10/29/more-thoughts-on-weaponized-keynesianism. New York Times Op-Ed Columnist, Professor of Economics and International Affairs at Princeton, Reagan Administration Council of Economic Advisors staff economist and 2008 Nobel Laureate in Economics. Let me follow up a bit on the sudden discovery by Republicans that cuts in government spending cost jobs and drive up the unemployment rate as long as the spending is on destruction rather than construction. Oh, and thanks to commenters for reminding me of Barney Franks coinage, weaponized Keynesianism. The first thing to say is that liberals shouldnt engage in mirror-image thinking, and imagine that spending we dislike somehow lacks the job-creating virtues of spending we like. Economics, as I say often, is not a morality play.

As far as creating aggregate demand is concerned, spending is spending public spending is as good as but also no better than private spending, spending on bombs is as good as spending on public parks. As I pointed out not long ago, a perceived threat of alien invasion, by getting us to spend on anti-invasion measures, would quickly restore full employment, even though the spending would be on totally useless object. Its also worth noting that one of the main sources of evidence that fiscal expansion really does stimulate the economy comes from tracking the effects of changes in defense spending. Thats true of Depression-era studies like Almunia et al, and also of several of the studies described in the Romer and Romer lecture on fiscal policy. Why the focus on defense? Two reasons, actually. One is that in practice defense spending is what moves: the fact is that large-scale stimulus programs consisting of domestic spending basically dont happen, while wars and arms races do. The other is that domestic spending tends to be endogenous, responding to events in the economy, so that cause and effect get blurred spending on unemployment insurance generally soars during recessions, but the causation runs from recession to spending and not the other way around. And the evidence clearly shows that weaponized Keynesianism works which means that Keynesianism in general works. So why do politicians and their hired economic propagandists
say differently? On reflection, I think its a bit more complicated than I suggested in my previous post on this topic, because theres a strong element of cynicism as well as genuine intellectual confusion. What kind of cynicism am I talking about? First, theres the general fear on the part of conservatives that if you admit that the government can do anything useful other than fighting wars, you open the door to dogooding in general; that explains why conservatives have always seen Keynesianism as a dangerous leftist doctrine even though that makes no sense in terms of the theorys actual content. On top of that theres the Kalecki point that admitting that the government can create jobs undermines demands that policies be framed to cater to all-important business confidence. That said, theres also the Keynes/coalmines point: theres a strong tendency to take any spending that looks like a business proposition building bridges or tunnels, supporting solar energy or mass transit and demanding that it appear to be a sound investment in terms of its financial return. This makes most such spending look bad, since almost by definition a depressed economy is one in which businesses arent seeing good reasons to invest. Defense gets

The moral here should be that spending to promote employment in a depressed economy should not be viewed as something that has to generate a good financial return; in effect, most of the resources being used are in reality free.
exempted because nobody expects bombs to be a good business proposition.

Economic downturn doesnt cause war Empirically. Blackwell 09 Robert Blackwill, Former Deputy National Security Advisor for Strategic Planning, 2009

The Geopolitical Consequences of the World Economic RecessionA Caution, Occasional Papers @ RAND Institute. www.rand.org/pubs/occasional_papers/OP275.html

Earlier slumps that have affected the United States may hold lessons regarding the present one. Including this recession, from 1945 to 2009, the National Bureau of

Economic Research has identified 12 U.S. recessions; excluding the current recession, their average duration was ten months (peak to trough).8 Did any of these postWorld War II U.S. economic downturns result in deep structural alterations in the international order, that is, a fundamental, long-term change in the behavior of individual nations? None is apparent. Indeed, on some occasions geopolitical events caused international economic dips, but not the other way around. For example, the Iranian Revolution in 1979
sharply increased the global price of oil, which in turn produced an international energy crisis and, abetted by tight monetary policy by the Federal Reserve, a U.S. recession.