December 30th, 2008
09:35 AM ET

Cut taxes, don't raise spending

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/12/30/art.gfx.wallst.jpg]

Jeffrey A. Miron
Special to CNN

When the Obama administration takes office in January, it will propose a fiscal stimulus consisting of increased government spending and lower taxes.

By all accounts, the package will be big - at least $700 billion, and possibly $1 trillion, over two years.

The goal will be to end or moderate the recession. According to the textbooks, government spending raises the demand for goods and services. Tax cuts also spur demand by putting more income in the hands of consumers or more after-tax profits in the hands of businesses.

Is a fiscal stimulus good policy? The answer is no if the stimulus consists of increased spending. The stimulus may be good policy, though, if it consists of lower taxes.

Consider first the increased spending.

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Filed under: Bailout Turmoil • Economy • Finance • Wall St.
soundoff (One Response)
  1. Arachnae

    Why on earth are you giving a forum for this voodoo nonsense? Supply-side economics has had its trial and if failed. Miserably.

    Frankly, short of the government spending a trillion dollars to buy up all the jewels in the world and storing them at Fort Knox, there is, in this economy, no such thing as BAD government spending.

    December 30, 2008 at 12:54 pm |