I don’t understand the logic here

Brad Plumer says:

That means Italy needs either to grow its way out of debt (hard to do right now) or run up even bigger surpluses, either by cutting spending or raising taxes. And that sort of grueling austerity could hurt Italy’s economy even further, worsening the problem. A more appealing possibility is for Italy to crack down on rampant tax cheating in the country.

Ok, one of the things that has been made clear to me about liberal economics is that there is a firm belief that ‘money is money’. If I take $100 from you, split it into thirds, and give it to 3 federal employees, that’s just as good. If I hire people to dig ditches, and then fill them in again, it doesn’t matter that there was no productive use of that time or effort, because the important thing is that people got paid, and they will use that money to buy things. Spending $100 billion on a high speed rail system that no one uses is ok, because the most important thing is that the money was spent, and the people who received that money in turn spent it on other things.

While I disagree with this philosophy (i.e. I believe that Return on Investment is far more important than raw spending), I believe that the Keynesian approach is, at least, internally consistent. Money is money, so austerity isn’t “morally better” than profligacy.

But I don’t understand how Brad can square this Keynesian belief with the paragraph above. If money is money, then cutting back on tax evasion is just another form of austerity. People are spending the money they aren’t paying in taxes. Taking that money from the tax evaders and using it to pay debts isn’t any different than raising taxes on those people in the first place.


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