Christina Romer is Obama’s advisor who made a strong case for tax cuts and against government spending. A quote from the paper: “Tax cuts provide powerful short-run stimulus to the economy, but there is little evidence that tax cuts restrain government spending.”

Yes, taxes were higher 40 years ago. Have you never heard of the 70′s, stagflation, high unemployment and 20% interest rates? Reagan cut taxes and changed all of that pretty quickly.

Decreased taxes result in greater economic growth – more jobs and higher government revenue. The biggest problem is spending, the more govnernment spends, the farther into debt it goes, more waste is created and finally, this is the worst effect:

More and more people become dependent on the government for every part of their daily life. As a result, government can never contract until is goes bankrupt . . . and then everyone who was a dependent, is screwed.

Which economic advisor? Which paper? Would like to look at it… Because he should be fired. We are in a deflationary environment and he wants to cut taxes. lol… And you mention increased taxes follow increased government spending… so? Taxes were much higher than they are now 40 years ago.

To put it simply:
-Right now we do not have enough demand
-Tax cuts increase demand by giving people more money
-Tax cuts also increase the supply of labor (working today is more attractive than working tomorrow when taxes go back up)
-Since supply of labor is going up at the same time as demand for product is going up… the gap is not narrowing
-Normally the Fed would just lower interest rates…
-They can’t. Rates are too low.
-Deflationary tailspin

I just want to make sure you realize… I do not approve of how our government is run. There is too much bloat. There is too big of a bureaucracy. I would love to make the government smaller. BUT I know that now is not a time in which that could possibly be done without exasperating the current crisis.

Do you want to take this discussion off of the blog so that we don’t flood your board with comments?

You are also not accounting for devaluation of currency.

What happens to your formula when everyone is working for the federal government? Who is going to generate the revenue in order to support that kind of bureaucracy.

If spending $10,000 per citizen is good, why isn’t spending $100,000 better?

Did the USA become the greatest economy in the world through government spending?

By the way, one of President Obama’s top economic advisers wrote a pretty convincing paper that theorized and supported the fact that cutting taxes increased the economy by a multiplier of 3, while government spending was closer to a one to one ratio.

Here is another example:

Tax multiplier = (Delta in taxes * -MPC) / (1 – MPC)

Govrnment spending multiplier = (Delta in government spending) / (1 – MPC)

mpc = marginal propensity to consume

If you set MPC to .7 and decrease taxes by $30,000,000 … output goes up to $70,000,000

If you set MPC to .7 and take that same $30,000,000 and put it into government spending… output goes up to $100,000,000

The statement “Why not give every American $1M in cold, hard cash?” shows a misunderstanding of government spending in an economic sense…

What do you suggest the USA does to turn the economy around, then?

And Keynes would have argued that a New Deal that was 3 times as large would have had the same effect as the war.

Our infrastructure is extremely outdated. That is REAL work. I think the bill they passed is laughable because of how little money they put towards new deal esque work.

And if you really think the gvt only exists for defense… I would think you have a hard time finding a politician you like

Just look at China… they are spending more than $500 billion in JUST infrastructure. If you take a look at the financials… a lot of companies are being propped up by China’s demand right now.

The Reinvestment package spends an average of $250,000 for every job it creates.

If government spending is the answer, why not spend another 2 or 3 trillion dollars? Why not give every American $1M in cold, hard cash? It does not make sense and this type of spending is going to make things worse in the long run by devaluing our currency.