Greetings From Stiltsville—Why Deficit Spending is not a Free Lunch

Like the island where height is valued above all else, the world in which GDP is valued above all else can easily be gamed, making an economy appear healthier and larger than it really is. Instead of wearing platform shoes or stilts, politicians game GDP by increasing the amount of government spending without necessarily increasing the productivity of the economy. Politicians also tinker with the tax code and provide incentives for the private sector to increase consumption and/or to favor one type of spending over another. Central bankers, who should know better, sit idly by adjusting interest rates, which allows the government’s poor fiscal habits to persist and grow. Neither politicians, economists, nor central bankers have any regard for the quality of spending.