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January 12, 2009

Kevin Drum — Why Can’t We Have It All?

by Brad Warbiany

Kevin Drum is looking at the benefits of massive fiscal stimulus as well as tax cuts… And he wonders why we don’t do both?

Stimulus spending can (we hope) help keep the economy afloat over the next couple of years, but then what? When the economy starts to recover, it will certainly be helped along if bank balance sheets are in better shape than they are today. Likewise, it will be helped along if consumers have paid down some of that credit card debt and put a few dollars aside. Right? We can’t keep running a negative savings rate forever, after all.

So: what’s wrong with government spending to stimulate the economy now, combined with tax cuts and bank recapitalizations to help get the economy in shape for recovery a couple of years down the road? This isn’t so much a suggestion as a question. Does this make sense, or is there some fundamental misconception at its core? What say the economists?

What’s wrong? I guess it’s reductio ad absurdum time.

If fiscal stimulus is good, and tax cuts are good, why don’t we simply spend more and eliminate taxes entirely?

Drum misses a key point: money has to come from somewhere. We can tax for it, we can borrow for it, or we can print it out of thin air. But it has to come from somewhere. Each way that you obtain that money has negative consequences.

So why can’t we do it all? We can. It’s just replacing a visible tax with an invisible, inflationary tax. The GDP growth, on paper, would probably look fairly impressive. Unfortunately it would be in ever-devaluing dollars.

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2 Comments

  1. In one of those three musketeer movies – a young apprentice (squire) was so proud of a new move he invented. As he showed it to one of the master swordsmen he is easily disarmed and then chased around the room by the master smacking him with the flat of his sword. The line in the movie always stays with me “It always amazes me how many different ways you can find to disarm yourself!” I am as guilty of being blinded by my own brilliance as the next person but any time you use the phrase “or is there some fundamental misconception at its core? ” the answer is yes.

    Comment by Blaine — January 13, 2009 @ 7:24 am
  2. [...] Why can’t we have it all? (The Liberty Papers) So: what’s wrong with government spending to stimulate the economy now, combined with tax cuts and bank recapitalizations to help get the economy in shape for recovery a couple of years down the road? This isn’t so much a suggestion as a question. Does this make sense, or is there some fundamental misconception at its core? [...]

    Pingback by Who’s going to pay for this stuff, anyway? « Blunt Object — January 13, 2009 @ 10:05 pm

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