By Harvard Business Review
There are a couple of fundamental questions at the bottom of Washington's ongoing battles over deficits and debt: (1) How big should the U.S. government to be? and (2) How should we pay for it? The answers to both will ultimately have to be political ones — messy calculations based on who pays, who benefits, who votes, and who makes the campaign contributions. But it would be nice to know what the economics are, wouldn't it?
It turns out economists have lots of theories of optimal government spending and optimal taxation. This isn't the same as saying they have reliable or consistent answers. As one critic wrote of Robert Lucas's American Economic Association presidential address on economic growth in 2003, in which the Nobel laureate cited several studies showing dramatic welfare gains from hypothetical tax cuts in France and the U.S.:
Such findings have two distinctive features. First, they show big numbers. Second, they are not really findings. Contrary to the