Krugman, Obama and Tax Cuts
Monday January 5, 2009
Paul Krugman:
Krugman goes on to add:
...if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved...There is some logic to this. Just because people have more money in their pocket does not necessarily mean that they will spend it.
Krugman goes on to add:
You can bulk up stimulus through other forms of spending, mainly aid to Americans in distress — unemployment benefits...These two statements are not necessarily contradictory - you could argue that because the benefits are likely to go to poorer people than the tax cuts, then they are more likely to be spent. By Krugman does not bother to make that argument, so I really do not know if he realizes how badly he is, or at least appears to be, contradicting himself.
Comments
Not sure I see any contradiction. Tax cuts go to people with incomes; unemployment goes to people without incomes. Only if you assume the unemployed are not income constrained or will constrain spending regardless of income, does a contradiction appear. The former is unlikely and while the latter is possible, the first thing cut by the unemployed is usually any unnecessary debt repayment or savings.
Ask krugman this - where’s the money come from?
increased supply from printing or reserves? (stagflation)
bonds? (decreased private investment)
Whichever fuzzy route of logic you want to take, the final conclusion you reach is that increased government spending will only replace private spending. In the welfare case, it simply puts the money of investor’s into the pockets of the poor, which as a socialist Krugman loves and wouldn’t mention openly.
Do I really have to use against a nobel prize winner this macroeconomics 101 rule?
savings = investment
What’s the world come to?
‘the truth about expansionary fiscal policy is that it’s not expansionary at all’
- milton friedman