Building on an earlier piece of his about "epistemic closure" among Chicago school / "freshwater" economists, Paul Krugman last month wrote a piece about how not only do neoclassical economists have no understanding or even knowledge of the Keynesian theories preferred in saltwater schools, they don't even understand their own models as well as Keynesians do.
Krugman was talking about stimulative spending at the time - Chicago schoolers deny there's any such thing, he was using their own model to prove that there is.
While reading David Swanson's rec-listed diary today (wherein Alan Simpson exhibits a stubborn refusal to consider facts even he knows) I remembered a thought which first occurred to me while reading Krugman's piece last month: the Ricardian equivalence preached by Chicago schools wouldn't just mean permanent government spending was unstimulative - it would just as surely mean that tax cuts while the government is in deficit can never be stimulative.
Under the Ricardian model, all actors in the economy have access to complete and perfect information. They're also perfectly rational, meaning they can always work out what course of action is best for their englightened self-interest and will always pursue that course. They also never die.
Of course, all of those assumptions fail spectacularly to represent the real world, but arguendo...
Under these assumptions, if the government spends $10 billion per year on nothing, funded through deficit, the populace realizes that the deficit will eventually have to be paid off via increased taxation down the road, and immediately reduces their private consumption to save enough to pay those future taxes. This is the essence of Ricardian equivalence: there is no difference between deficit and taxation.
Some Republicans are fond of repeating Milton Friedman's glib summary of the principle: "To spend is also to tax."
The thing is, though, this principle applies in exactly the same way to tax cuts. The models on which they claim to base their economic theories say quite clearly that increasing the deficit by reducing taxes will make absolutely no difference to private sector behavior. In other words, it's simply impossible for "tax cuts to pay for themselves", under the exact same economic theory embraced by everyone who ever said they do.
I'm not sure, yet, whether the problem is, as Krugman says, that they simply don't understand this, or whether it's because they willfully disregard what they know so they can continue to believe in what their ideology demands.