Saturday, December 25, 2010

Robert Shiller Plays Santa Claus and Tells Congress to Spend, Spend, Spend (And Tax, Tax, Tax)

Yale economist, Robert Shiller, is out with some holiday cheer for Congressional big spenders. His theory: Government spending won't raise the deficits, but it will boost the economy.

Here's how he reaches this fantasy:
It has long been known that Keynesian economic stimulus does not require deficit spending. Under certain idealized assumptions, a concept known as the “balanced-budget multiplier theorem” states that national income is raised, dollar for dollar, with any increase in government expenditure on goods and services that is matched by a tax increase.

The reasoning is very simple: On average, people’s pretax incomes rise because of the business directly generated by the new government expenditures. If the income increase is equal to the tax increase, people have the same disposable income before and after. So there is no reason for people, taken as a group, to change their economic behavior. But the national income has increased by the amount of government expenditure, and job opportunities have increased in proportion. 
This is simply nutty. Taxes equal to government expenditures simply remove that amount of money from the private sector. And that is what Shiller is really calling for:
And, as we all know, today’s voters are extremely sensitive to the very words “tax increase.”

But voters are likely to accept higher taxes eventually, as they have done repeatedly in the past. It would be a mistake to consider the present atmosphere as unchangeable. It’s conceivable that an effective case will be made in the future for a new stimulus package, if more people come to understand that a few years of higher taxes and government expenditures could fix our weak economy.
Of course, you are not going to raise deficits if you take the money from the people up front!
As for a stimulus to the economy. It will do nothing but damage the economy.

People will have less to spend on their own consumption as that money is taken and spent by government. Further, individuals are also prevented from saving any of the taxed money. Savings is what makes an economy grow, as it results in an increase in the number of goods produced in an economy. Thus, a taxed economy is a suffocated economy.

Bottom Line: Raising taxes is simply government coercion resulting in money being spent by the government bureaucracy,  instead of allowing individuals to spend their own money the way they want to spend it.  When you hear, “balanced-budget multiplier theorem”, think Bob "Santa Claus" Shiller coming after your money with a gun.

2 comments:

  1. I'm beginning to think there is a serious crack and meth problem with college professors.

    Effing idiots should not teach a$$ine cr@p to our children.

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  2. Oh, I love this one. Follow the logic, "On average, people’s pretax incomes rise because of the business directly generated by the new government expenditures. If the income increase is equal to the tax increase, people have the same disposable income before and after."

    oops...except for the inflationary effect of expanding the monetary base when the "stimulus" is printed and then 'helicoptered' into the economy. The reduction in the buying power of the "same disposable income" effectively IS NOT EQUAL.

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