Sunday, February 07, 2010

More Grave Rolling III

clipped from money.cnn.com

Did Keynes champion tax cuts or government spending increases in a recession?

Again, he was extremely vague. On spending, he did say that deficits should be temporary and self-liquidating. He clearly did not advocate long-term spending in excess of revenues, since that causes structural deficits. Nor did he specifically recommend tax reductions for individuals or companies. Those types of cuts, however, are an obvious way to achieve his goal of boosting investment in a recession. And it's been used with great success by his Keynesian disciples. For example, the Kennedy Administration tax cuts were championed by Keynesian economists, and proved very successful at raising investment.

The temporary reductions under Carter, George W. Bush and Obama were all failures, since people spend more only when they're confident their take home pay will rise permanently.

This is standard economic theory that the current administration ignores.