Monday, December 14, 2009

Now They Tell Us: Tax Cuts Just Might Work Better Than Government Spending After All

The New York Times finally runs a column that argues what every Economics 101 student knows: tax cuts work better than government spending in fighting a recession (two times better?)

"When devising its fiscal package, the Obama administration relied on conventional economic models based in part on ideas of John Maynard Keynes. Keynesian theory says that government spending is more potent than tax policy for jump-starting a stalled economy.

The report in January put numbers to this conclusion. It says that an extra dollar of government spending raises G.D.P. by $1.57, while a dollar of tax cuts raises G.D.P. by only 99 cents. The implication is that if we are going to increase the budget deficit to promote growth and jobs, it is better to spend more than tax less.
But various recent studies suggest that conventional wisdom is backward."

Now granted, this was written by a former Bush adviser.  But he is Harvard, and even the Times felt compelled to air his views.  Has a turning point been reached that simply recognizes the obvious - that is, that the so-called "stimulus" fell well short of what it promised and that the only logical step at this point is tax cuts?  Let's hope so.  Economics 101.  Economics 101.  Economics 101.  We can't say it enough.

Thanks to Instapundit and TaxProfBlog.

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