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Mainstream economics tells us (quote logically I believe) that the multiplier effect of government spending is greater than that of tax cuts.  That is to say an increase in government spending increases GDP more than a tax cut of the same amount.  Why?  Because if I have a tax cut, I am likely to save some of that money.  The government can inject money directly into the economy.  That obviously doesn't mean there should be extremely high taxes and only government spending.  But it does make us ask what will happen to the economy under Ryan's budget?  I personally am not versed enough in economics to give a thorough answer, but it does seem worth exploring, since Republicans keep talking about putting money back in the people's hands.  That may not always be the best idea.

Adam Weiss blogs at politicalcreativity.net

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Comment Preferences

  •  Tip Jar (2+ / 0-)
    Recommended by:
    Mokurai, hannah

    Adam Weiss www.politicalcreativity.net

    by AdamWeiss on Sun Aug 12, 2012 at 08:40:42 PM PDT

  •  In the last 4 years, under the Bush/Obama tax cuts (0+ / 0-)

    Spending as a share of the GDP has gone from 40.4% to 44.2%, an increase of 3.8%, while revenue as a share of the GDP has gone from 35.5 to 32.5, a decrease of 3%.
    In that  time gross debt as a share of the GDP has increased by some 32 percent and $5.9 trillion has been added to the national debt.

    Step 1: The government has to be funded.

    •  Thus tax increases on those whose rates (0+ / 0-)

      have been cut too far, together with investment (not mere spending) in infrastructure, education, and government services that support the economy.

      But most of all in jobs, because as jobs increase, and as competition leads to higher pay in existing jobs, so tax revenue rises without raising rates.

      Hey, Mitt! Thanks for ObamneyCare. http://www.healthcare.gov

      by Mokurai on Sun Aug 12, 2012 at 09:34:51 PM PDT

      [ Parent ]

  •  A couple of things (2+ / 0-)
    Recommended by:
    hannah, AdamWeiss

    1. As you point out, tax cuts in general have less stimulative effect than spending.  In mainstream macroeconomics, this is rather settled.

    2. The tax cuts that go to Romney and his ilk are on unearned income and overwhelmingly benefit a particular type of rich person who makes his money by trading other financial instruments.  This is not all that likely to turn into autonomous spending.

    3. But you and I are from the reality based community, so what we think doesn't count.

    •  Vicarious deprivation is what the (0+ / 0-)

      financial engineers have invented. By using money as a tool of deprivation, rather than a measuring instrument, they've figured out how to steal not just legally, but so it's hardly noticed -- until the shortage of currency slows all exchange and trade to a crawl. Financial engineering is inherently abusive -- in the same way that self-abuse is a waste of sperm. Vicarious pleasure is what Wall Street is about and Willard wants to be the Vicar of that.

      The Vicar of Lucreville is not unlike the Vicar of Christ.

      Willard's forte = "catch 'n' cage". He's not into "catch and release."

      by hannah on Mon Aug 13, 2012 at 02:12:59 AM PDT

      [ Parent ]

    •  excellent point! (0+ / 0-)

      Thanks for adding a very good point to my post.  We could even add the other side of the coin: that tax cuts on the income of the poor and middle classes are more likely to have a stimulative effect, since they are more likely to spend money than save it.

  •  Economists are at sixes and sevens (0+ / 0-)

    because they mostly start with false assumptions.
    Fact is that a sovereign government, such as the US, creates its own currency.  The habit of passing dollars through the banks and letting them decide who gets to use them first and letting them lend them back to the government at a premium is a scam, invented by a Congress aiming to shirk responsibility for the management of the currency and the nation's real assets and natural resources.  
    Managing the population with onerous proclamations seems more empowering and less quantifiable.
    This is not new.  The Congress has long been more about keeping its membership in power, rather than meeting the practical obligations outlined in the Constitution. The Tea Party people actually have that right.  What they have wrong is in thinking that because Congress is using money as a tool to coerce the population, taking money away from them will make them more responsible. Conservative politicians aren't capable of being responsible because they don't care, can't take care. We've hired people whose only talent is a gift for gab, so all they do is talk.
    What we need to do is hire stewards, just steward -- not the dishonest kind Jesus of Nazareth warned about.

    If the US issues its own currency, why does it have to borrow it back to spend it for goods and services?  Doesn't it tax just to keep the current flowing, rather than letting the money be hoarded?

    If you look at the FED's charts, you'll see that the most impressive change is the rate at which the dollar is moving through the economy

    http://research.stlouisfed.org/...

    Willard's forte = "catch 'n' cage". He's not into "catch and release."

    by hannah on Mon Aug 13, 2012 at 02:05:23 AM PDT

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