Monday, January 5, 2009

Taxes and Spending

Note to Hardball: In this segment your Republican and Democratic guests are arguing over an economic point that is theoretically moot. Maybe that's the beauty of it. In terms of economic impact of a tax cut (in both the "liberal" Keynesian and "conservative" neoclassical schools of thought) is the same as an increase in transfer payments (consumption subsidies). Similarly, an increase in transfer payments is the same as a tax cut. Spending is only "spending" (in terms of having different multiplier effects) if it involves a direct government purchase of goods and services, which transfers/tax cuts/negative taxes do not. Even better if those goods and services have some theoretical possibility of being "public goods" or generating "externalities" or "network effects" as investments in education, infrastructure, or even the military and health care, might.

2 comments:

  1. Anonymous6/1/09 12:07

    When the government takes money from one person and gives it to another, it is stealing. But stealing is theoretically moot, to an economist. But it is not moot to most people.

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  2. That's an interesting, if extreme and deliberately provacative point. Probably everyone has their own philosophical "line" for the extent to which government can or should be involved with promoting the safety security, and general well-being of its constituents. For example, is it stealing if the government uses my tax dollars to spend more on the police, or on roads, or on public education than I would personally prefer? No, because, in a democracy, by voting I've stated my public willingness to be party to the social contract that comes out of that process. Otherwise, we resort to anarchy or revolution. Are you bringing a revolution, "anonymous?"

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