My peer Lord Omlette pushed out this statement about the Bush Era tax cut extensions:
“When will people figure out that tax cuts are not a stimulus?”
I understand people always argue about what exactly institutes an economic stimulus. So I went to Edward C. Prescott’s and Gordon Tullock’s (both favorites for the Nobel Prize in Economics) analysis of what exactly governments can do to stimulate the economy. They both have similar points, and Tullock agrees with Prescott’s statement when interviewed by NPR awhile back:
“There are a few types of economic stimulus a government can perform. The first is to give money away. The second is to force price reductions in certain commidities. The third is to lower or eliminate taxes on citizens for a certain time period. The first works half the time, the second rarely ever, and the last almost always.”
Emphasis is mine.
I realize upon reading my peer’s blog that he references a lot of exterior blogs, and I thought I might be missing a potential bit of information that they somehow came upon. However, out of the three blogs (Juan Cole being one of them) I read, only one said that tax cuts are not economic stimulus, and that blogger also said that the number of jobs in the US should triple by November (which was not even close). So in all honestly, none of the bloggers my peer reads are even close to being real economists, or even good at predicting economic trends.
Here’s Joan Robinson (another future Nobel candidate) on tax cuts:
“Taking people’s money when the economy is weak does not improve the economic situation, mainly because people start to save instead of spend. To reverse downtrends, it is often up to the government to lessen tax liens against the lower and middle classes, and give the unemployed a short reprieve.”
I guess I just don’t understand what basis Omlette makes the previous statement. Tax cuts are stimulus. Maybe – like the Republicans – he doesn’t want his political opponents (which are the Republicans) to take credit for stimulating the economy.
** For the record, I agree with him and his quoted blogs, that tax cuts for the rich don’t stimulate anything, since the rich rarely spend the money they “rescue” from being taxed. However, you take what you can get, because the reality is the rich have been running the country for over a century, and the lower classes are entirely at their mercy. **