Johnny Munkhammar: Extra government spending doesn't bring growth

Johnny Munkhammar was a Member of Parliament in Sweden for Moderate Party. A blogger and advocate of free market causes he was author of The End of Stimulus (American Enterprise Institute) and a writer for the Institute of Economic Affairs. He died earlier this month from a rare form of cancer and we believe that this article may have been the last he wrote. He leaves behind a wife and two children.

Economic growth instead of austerity! This has been the renewed call of political leaders such as Barack Obama and Francois Hollande recently. Their policy interpretation of how to achieve growth is to put government in the driving seat and increase public spending to stimulate the economy.

Even in "austerity" UK, government spending under the coalition is hardly falling and, because GDP is stagnant, government spending as a proportion of GDP is remaining harmfully high. There have been calls from within the coalition for more infrastructure spending. However, though such spending may be justified on the grounds of long-term profitability, we should not fall for the illusion that it will kick-start growth.

But how come austerity countries such as Estonia, Latvia, Lithuania - and to a large extent also Sweden and Germany - are making it out of the recession better than stimulus countries such as Spain or the United States? Here are a few explanations.