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A start on fixing the economy

Posted by Jeff (ILoveCapitalism) at 3:03 pm - March 6, 2013.
Filed under: Depression 2.0,Economy,Free (or Private) Enterprise

Good article from Michael Boskin. Since it mostly speaks for itself (and since I’ve pounded the table on some of these ideas before), I’ll just quote a few highlights.

President Obama’s most recent prescription for economic growth—more government stimulus spending, new social programs, higher taxes on upper-income earners, subsidies for some industries and increased regulation for all of them—is likely to have the same anemic results as in his first administration…

Standard Keynesian models that claim a quick boost from higher government spending show the effect quickly turns negative. So the spending needs to be repeated over and over, like a drug, to keep this hypothetical positive effect going. Japan tried that to little effect, starting in the 1990s. It now has [ultra-high] debt-to-GDP…

Since World War II, OECD countries that stabilized their budgets without recession averaged $5-$6 of actual spending cuts per dollar of tax hikes…In a paper last year…Stanford’s John Cogan and John Taylor…show that a reduction in federal spending over several years amounting to 3% of GDPbringing noninterest spending down to pre-financial-crisis levels——will increase short-term GDP.

Why? Because expectations of lower future taxes and debt, and therefore higher incomes, increase private spending…

An economically “balanced” deficit-reduction program today would mean $5 of actual, not hypothetical, spending cuts per dollar of tax hikes

…the demand by Mr. Obama and Senate Democrats that any dollar of spending cuts in budget agreements this spring (to fund the government for the rest of the fiscal year and when the debt limit again approaches) be matched by an additional dollar of tax hikes is economically unbalanced in the extreme…

Emphases added. Read the whole thing. Boskin backs his claims with examples, which I’ve omitted, to give you a reason to go there.

I’ve titled this “A start on fixing the economy” because we need additional steps to reduce government’s crushing, depressing burden on the economy. Spending cuts alone will not be enough. Repealing Obamacare would also help a lot, as would some other sort of measures to make clear to people that the Obama administration’s nonstop, unpredictable interference in business is over.



  1. Unfortunately, for the Obama administration, “fixing” the economy is rather like a vet “fixing” a dog.

    Comment by Kurt — March 7, 2013 @ 2:17 am - March 7, 2013

  2. heh 🙂

    Comment by ILoveCapitalism — March 7, 2013 @ 3:00 am - March 7, 2013

  3. To be fair and objective, the stock market is reaching all time highs, the real estate market is bouncing back and the unemployment rate is going down. Yes, the unemployment rate needs to go down lower but overall, things seems to be really improving.

    Comment by kjt — March 7, 2013 @ 11:56 pm - March 7, 2013

  4. … while the Federal government runs deficits of over $1 trillion per year, made possible by the Fed printing money in similar quantity.

    To be “fair and objective”, kjt, you have to look at both sides. Let me spend $1 trillion a year that the Fed prints from thin air to hold this economy together… and I will also give you inflationary processes (bubbles) in most of the financial markets, combined with employment that barely rises except for part-time, multiple-job, and other temporary workers. Plus $4.50 gas, $15 for a chicken, etc.

    Comment by ILoveCapitalism — March 8, 2013 @ 3:17 pm - March 8, 2013

  5. More, here:

    Comment by ILoveCapitalism — March 8, 2013 @ 3:19 pm - March 8, 2013

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