12-02-2016, 02:05 AM
(12-01-2016, 08:30 PM)Eric the Green Wrote: Lowering taxes does not work; printing more money or government spending are better (especially the latter). That would mean interest on the debt would also rise, so in that case high debt would come back to bite us.
Actually government spending is the least effective way to try to stimulate the economy. The problem is that spending stimulus is inflationary, which means that you have to cut back on monetary stimulus to avoid excessive inflation. In addition, the multiplier on federal spending is less than 1 under all economic conditions, varying between 0.7 and 0.9:
http://www.aeaweb.org/aea/2013conference...?pdfid=373
Supply side stimulus such as cutting tax rates in concert with monetization of the debt is the best form of stimulus; supply side stimulus is deflationary, permitting application of additional monetary stimulus. Tax rate cuts are especially good as they increase the incentive to work and thus increase the labor market participation rate, which is particularly critical when the economy has a lot of retirees to provide for.
But perhaps the most important issue is that government spending is generally in the form of payments to large corporations, so it adds to wealth inequality. Across the board tax rate cuts, in contrast, benefit the workers, and thus tend to decrease inequality.