Norquist Dredges Up Shallow Lake Analogy To Criticize Stimulus

Seeking to prove that “government spending does not create jobs,” anti-tax advocate Grover Norquist said that fiscal stimulus amounted to moving buckets of water around a lake, an overly simplified analogy that is nothing more than a rhetorical mirage.

Norquist appeared on Meet the Press to justify GOP intransigence against raising taxes on the wealthy in order to increase federal revenue and help reduce deficits. He trotted out the tired canard that the 2009 recovery act failed to bolster the economy and argued:

The idea that if you take a dollar out of the economy and then -- from somebody who earned it, either through debt, or through taxes -- and give it to somebody who's politically connected, that there are more dollars around, that if you stand on one side of the lake and put a bucket into the lake, and walk around to the other side in front of the TV cameras, pour the bucket back into the lake and announce you're stimulating the lake to great depths. We just wasted $800 billion on stimulus spending that added to debt, that killed jobs.

Norquist's analogy is all wet. If we were to conceptualize the economy as a large lake, we would in turn conceive of the four components of the economy - private consumption, investment, government spending, and net exports - as tributaries feeding that lake.

Consider Lake Erie by way of example. Assume that unregulated mortgage bankers partnered with Wall Street and the ratings agencies to bundle worthless assets and use them to dam up the Detroit River. This presents a problem, as the Detroit River is a major Lake Erie tributary. The stimulus metaphorically added water to the Cuyahoga River in order to help mitigate the damage to Lake Erie's water supply. To extend the analogy, geologists estimate that the stimulus act increased the amount of water in Lake Erie last quarter, while the flow pattern from the Detroit River continues its struggle to return.

Norquist's misleading metaphor serves to perpetuate the zombie lie that government spending always crowds out private investment. Nobel Prize winning economist Paul Krugman eviscerated that claim back in 2009:

Under the kind of conditions we're now facing, the main determinant of business investment is the state of the economy, as evidenced by the plunge in investment shown in the figure. This, in turn, means that anything that improves the state of the economy, including fiscal stimulus, leads to more investment, and hence raises the economy's future potential.

That is, under current conditions deficit spending doesn't lead to crowding out -- it leads to crowding in. In fact, you could argue that the worst thing we can do for future generations is NOT to run sufficiently large deficits right now.