Whenever the the economy runs into a minor recession, the government can certainly feel tempted to increase spending. Of course in this government's case, even a slowdown in groth will prompt it to increse spending. And therein lies the problem. The market adjusts to government spending. If the government keeps spending like it does now when the economy is doing well, the market will adapt to this level of spending. Then, when we call into recession, governments will find themselves needing to maintain the present level of spending just to prevent the recession from getting worse.
When a government increases spending only in the most dire of circumstances, the market can adapt to that too. As a result, when we fall into even a serious recession, a government might need to increase spending just a little to provide enough stimulation. But what do we do when the economy is already addicted to high government borrowing in the good times and then falls into recession?
When a government increases spending only in the most dire of circumstances, the market can adapt to that too. As a result, when we fall into even a serious recession, a government might need to increase spending just a little to provide enough stimulation. But what do we do when the economy is already addicted to high government borrowing in the good times and then falls into recession?