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In which a man with an exceptionally creepy mustache explains why both tax cuts and government spending may or may not stimulate the economy, depending on who the tax cuts go to and what the government spends money on.
Note: This video is part of a series which debunks myths pertinent to laissez-faire capitalism. Many points not addressed in this video can be found at the above link.
Myth: Tax cuts stimulate the economy; government spending does the opposite.
Overall, the evidence is not consistent with the belief that the level of taxes or government spending has a large effect on economic growth. There is no clear link between periods of low taxes and high growth. The strongest period of growth in U.S. history was the 1960s—when the top marginal rate was 70 percent or higher. More recently, economic growth in the 1990s was quite strong, despite the 1993 increase of the top marginal tax rate from 31 percent to 39.6 percent. In addition, after-tax income gains have been significantly larger among the top five percent of tax filers—the only group affected by the increase in marginal tax rates in the 1990s—than among the rest of the population. More detailed economic research also finds no evidence that countries with lower tax rates or higher levels of government spending experience stronger economic growth.[Source]
Neither government spending nor tax cuts necessarily stimulate the economy. Indeed, some kinds of government spending—such as that which essentially distributes money to powerful corporations—almost certainly will not help create an economic boost. This is the kind of spending that occurs when corporate power, acting through government, is inadequately checked. Any reasonable person would have a problem with this; it certainly qualifies as waste, and libertarians and progressives should be working together against it. However, there is plenty of evidence to suggest that government spending on other kinds of things (to name just a few examples, mass transit and freight rail, “smart” electrical grid transmission systems, and wind and solar power) can and does stimulate the economy:
Nobel laureate Joseph Stiglitz and now-CBO director Peter Orszag wrote in late 2001, Basic economic analysis indicates that increased government expenditures can indeed be stimulative, and, in fact, are often more effective as stimulus measures than tax cuts. Similarly, two senior Federal Reserve economists found in 2002 that increases in government spending tend to have a greater stimulative effect than tax cuts that have the same cost, because more of the increase in government spending will translate quickly into an increase in total spending in the economy, while a substantial part of a tax cut will generally be saved.[Source]
This only stands to reason. Individual spending on productive ends stimulates the economy, and there is nothing magical about the process of individual spending on productive ends that makes it fundamentally different from government spending on productive ends. Further, when it comes to whether tax cuts to the rich or to the poor are more likely to improve economic prospects in general, the answer is pretty obvious. If spending stimulates the economy and wealthy people are more likely to save and invest their money than poorer people, tax cuts to poorer people will clearly be of greater advantage to the economy than those to wealthier people.
…for the rest of this video’s text, see http://beingism.org/community/?q=node/13
http://Beingism.org
Duration : 0:4:55
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February 2nd, 2010 at 2:31 am
No. I was …
No. I was answering your question. There have been numerous societies and histories in which free-markets and laissez-faire not only was implemented but worked.
Your last sentence is true. You cannot have freedom when government steals property from hard working people to bail out losers (both non-working people and failing corporations). “Modern Capitalism” is theft for the benefit of corporate coffers and government shills who enrich them.
February 2nd, 2010 at 2:31 am
So are you saying …
So are you saying that we should go back a medieval way of life? I hope not.
In 19th Century America, the government gave corporations huge subsidies and countless sweetheart deals. In fact, the development of any modern capitalist economy requires brazen violations of market principles.
February 2nd, 2010 at 2:31 am
check out their …
check out their video “Myth: Socialism trusts government too much.”
February 2nd, 2010 at 2:31 am
The only utopian …
The only utopian fantasy I see, is the ASSuption that government can magically fix anything or help anybody without having to steal to do so.
Socialists are the utopians. The free market advocates are the realists, since economics is not a mathematical formula: It is the bald truth that a cheetah must catch a gazelle, or it will die.
February 2nd, 2010 at 2:31 am
A study of the 18th …
A study of the 18th-19th Century (including Colonial times when England was not banning mints and sovereign notes) shows prices fall and wages rise when the government stays out of markets. However, during the War of 1812 and the War of Aggression against the South, prices rose wildly and wages dropped. The 1880’s were the best example of laissez-faire, when the Greenbacks were finally put to rest; prices fell more than any other time in America and wages rose in accord.
February 2nd, 2010 at 2:31 am
Medieval Europe had …
Medieval Europe had numerous examples of free markets. The original Bank of Venice, for example, was free of governmental control and, at that point, interest was based purely on consumer time preference and the supply/demand of money. At many points in English history, Kings stayed well away from the market and allowed mercantilism to govern itself.
Most of the 19th Century in America were laissez-faire. With the exception, of course, for the 9 war years.
February 2nd, 2010 at 2:31 am
Tell me a single …
Tell me a single society in which a “free market” has ever existed. Not a single libertarian/whatever can ever seem to be able to answer this question. The “free market” is a utopian fantasy.
February 2nd, 2010 at 2:31 am
+1 for familiarity …
+1 for familiarity with austrian economics
February 2nd, 2010 at 2:31 am
Saving (investment) …
Saving (investment) has a direct positive effect on economic development. Thus cutting taxes for the wealthy would be more efficient.
February 2nd, 2010 at 2:31 am
Markets are the …
Markets are the only way investments can be made that account for consumer time preference. Interest rates should be free to fluctuate based on saving or spending.
Nobel Laureate Friedrich Hayek produced the only workable explanation to business cycles, since it accounted for why capital goods industries always boom beyond consumer goods. People are spending, yet interest rates reflect “saving”.
It’s the Fed’s fault, not the “free market”.
Quit while you’re behind, guy…
February 2nd, 2010 at 2:31 am
Yes, FDR’s programs …
Yes, FDR’s programs created price increases (making it harder for consumers to buy goods) and the jobs that were created did not accumulate private wealth to stimulate wages and capital investments.
Keynesian policies are destructive to market balance and CAUSE the boom and bust cycles, instead of abate them.
Bubble-nomics, which this guy advocates misallocates capital into unsustainable future investments that always crash.
The Keynes solution, is more inflation and on and on we go…
February 2nd, 2010 at 2:31 am
Tax cuts for the …
Tax cuts for the poor, Rich, and Middle the class.
February 2nd, 2010 at 2:31 am
You are completely …
You are completely wrong about FDR. He did not get us out of the Great Depression. In fact, his New Deal precisely caused the Great Depression to be prolonged until the early-mid 40’s, when we were plunged into WWII. “Dr. Win the War” was better on economics than “Dr. New Deal.” The New Deal was a political success, but a major economic failure. Too bad most historians are uneducated on economics.
I suggest you educate yourself. For a start, read Amity Shlaes book, “The Forgotten Man.”
February 2nd, 2010 at 2:31 am
You said that a …
You said that a substantial part of a tax cut will be saved. That is wrong. You are thinking of tax rebates which are worthless. Tax cuts permanently reduce the rate of taxation.
For the record, ideally, I oppose tax cuts. Taxes should be so low, flat and fixed that the government cannot reduce taxes. Most sophisticated macro-economists oppose using fiscal policy. When the economy slumps, the government should ideally, do nothing. Politicians will never do this.
February 2nd, 2010 at 2:31 am
The government …
The government takes, borrows and prints $ They have to divert resources to spend.
“A visual representation of the stimulus package is: Imagine you see a person at work taking buckets of water from the deep end of a swimming pool and dumping them into the shallow end in an attempt to make it deeper. You would deem him stupid. That scenario is equivalent to what Congress and the new President proposes for the economy.”
-Walter E. Williams, head of the George Mason University Economics Department
February 2nd, 2010 at 2:31 am
“Massive government …
“Massive government spending likely lengthen the economic struggles each time. I don’t know why Obama said all economists agree on this, they don’t. If you go down to the third tier schools, yes maybe, but they’re not the people advancing the science.
-Edward Prescott of Arizona State University – Nobel Prize winner
February 2nd, 2010 at 2:31 am
“This is probably …
“This is probably the worst bill (stimulus) that has been put forward since the 1930’s. I think it is garbage.”
-Robert Barrow of Harvard University
“It’s not part of what anybody has taught graduate students since the 1960’s. They are fairy tales that have been proved false. It is very comforting in times of stress to go back to the fairy tales we learned as children, but it doesn’t make them less false.”
-John Cochran of UC – he also said “public prayer would work better and cost a lot less”
February 2nd, 2010 at 2:31 am
The clear link …
The clear link between low taxes and high growth: The 1980’s – We drastically lowered taxes and yet revenue to the government went up. Why? Because by lowering taxes (see the laffer curve – if you even know what that is…..), we created an inventive to produce. The increase in taxes in the 90’s was quite small on scale. The economics of the 60’s set the stage fro the lost decade almost of the 70’s when Keynesianism was proven to be a colossal failure once again.