Spending Plan leaves many unstimulated

http://archive.columbiatribune.com/2009/jan/20090130comm003.aspAccording to article, suppose the value of all that we will produce in 2009, our gross domestic product, totals $14 trillion. There cannot be any disagreement that if Congress spends $4 trillion, of necessity there is only $10 trillion left for us to spend privately. In other words, if Congress is going to spend $4 trillion, it must find a way to get us to spend $4 trillion less. The most open and aboveboard method to force us to spend less privately is to tax us to the tune of $4 trillion.
Another method to force us to spend less privately is to print money and inflate the currency. I think tax and inflate the currency would not good way to do for this problem, because bottom of the income scale people suffer from inflate the currency and tax. I think people who are satisfied or happy with their life, would no problem to pay tax or inflate the currency. Goverment spend money to makes suffer people happy might make money more than they expect.


Dr. Tufte said...

-1 for several grammatical errors (waived for this block only).

It isn't correct to say that the government has to raise $4T. They already spend $3T, so they need to bump that up by $1T.

Part of the Keynesian theory - dubbed the Galbraith effect by Kling - is that, since we are better off with the government spending money for us, the cost of that $1T will be less than the total.

Also, you've missed the idea that the government could borrow money too.

Gracie said...

Why would the population have to spend 4 Trillion less? Isn't it a good thing for GDP to keep growing? Also, if our goal is to grow, how would borrowing encourage that? It seems like borrowing would discourage that, because of the crowding out effect.

Dr. Tufte said...

This is a good question.

The whole debate about whether the Keynesian policy prescription is a reasonable way to approach recessions rests on our view of whether +x dollars of government spending causes private spending to change by -x (so that they sum to zero), or something else.

My point was much smaller: that +x is not +$4T, but rather +$1T.

carson said...

Now that we have a price for the stimulus package - $3.6 trillion - and President Obama is still claiming to have the deficit cut in half by the end of his first term, he must have great confidence in his ability to spend money in order for this economy to improve.

Dr. Tufte said...

I would not discount the deficit claim too quickly. A growing economy can reduce deficits substantially, and if the recession ends relatively quickly the economy will start cranking down the deficit.