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View Diary: Austerity - The Republican Path to Total Collapse (15 comments)

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  •  Every theory has its limits (2+ / 0-)
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    Sparhawk, slowbutsure

    There are probably times when increasing the supply of capital through tax cuts will help to booster the economy, but I believe you are correct that in general it isn't a great theory.  Government spending certainly does stimulate the economy, but unless the spending is spent on something that will benefit the economy in the long term, it often just leads to a worse boom and bust cycle.

    OTOH, the idea that since we are not growing very fast (a developed economy does not often grow much more than 3%) means we need to keep spending ignores the fact that our GDP/debt ratio is approaching 1:1.  At some point interest rates will increase, and the payments to the debt will balloon.  Cutting too much will cause an austerity spiral, but spending too much is not sustainable, and can eventually require cuts that will inevitably spiral down.  That is a real lose lose proposition.  

    What we need to be focused on is taxes and spending that are the most efficient and productive.   Kind of like changing lanes on a crowded freeway, we need to accelerate to get in front of the guy behind us, but not us much that we run over the guy in front of us.

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