The Liberty Papers

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.