Originally posted by kswier So the Laffer curve discussion basically says that increasing taxes (from our current rate) will not result in increased revenue. Thus, any tax cuts must be accompanied by a spending decrease if you do not wish to add to the deficit (and the Bush tax cuts are a good example of this).
Increased taxes WILL increase revenue until you reach the top of the "hump". THEN taxes decrease revenue (this is generally around the 60-70% mark)
The "Laffer Curve" is Laughable
DECREASING taxes and increasing spending during the bush years is why we have a huge deficit. It would actually be somewhat of a good thing IF it wasn't spent overseas and was actually used more domestically (war industries excepted)
Originally posted by kswier The second question is whether cutting taxes will jump-start the economy more than additional government spending (both increase the deficit, but which provides greater benefit, or are they about equal). Does anybody know of any academic papers or theories about this? My incomplete (and possibly wrong) understanding is that deficit spending helps the economy because it pumps 'free' money into the economy, but is a detriment to the future economy (when you pay the loan back, though this can be controlled via inflation and other mechanisms). My understanding is also that it is good for money to move around (exchange hands). Thus, there might be more immediate benefit to giving tax cuts to poor people (they will spend all of it) than rich people (who might safe more of it?). However, as long as the money gets spent, I would expect little economic difference between tax cuts and an equivalent government spending program (i.e. the deficit spending is the benefit).
As an aside, I am looking at this detached from social responsibility, which also has to play a role when creating policy (i.e. of course rich do not need the money and the poor/unemployed/and even the middle class do).
THAT is the trillion dollar question.. My best answer is always WHAT would happen to the economy if instead of directly paying the banks (leaving Americans still buried in debt) you paid off the mortgage w/ fed fiat money and signed the homes over to Americans..... My prediction would be a booming economy as the now debt free consumers "upgraded" everything from their house to cars, to re-eduction and job training to starting their own business..
Of course you can see the "morality" problem w/ that.........
It's not how much the Fed spends but what they spend it on......
The whole current discussion on "economics" is nothing BUT an American morality play....... no more no less.
Start here for an idea........you may be one of the "lucky" ones that actually catches on...... a lot of good that will do you though....
It just adds to frustration when you realize a perfectly good country is making an even bigger A$$ of itself........
Bill Mitchell – billy blog | Modern Monetary Theory … macroeconomic reality
I guess it is akin to a Vietnam War of economics...
Quote: The data shows that the US public “currently expects the inflation rate to be less than 2 percent on average over the next decade”. The ten-year expectation is in fact 1.38 per cent per annum. In the light of the massive expansion of the US Federal Reserve’s balance sheet and all the mainstream macroeconomic theory is predicting that such an expansion would be highly inflationary, how can the public expect inflation to be so low over the next decade? Answer: the mainstream macroeconomic theory is deeply flawed and should be disregarded. Modern Monetary Theory (MMT) correctly depicts the relationship between the monetary base and the broader measures of money and explains why movements in the former are not inflationary.
Debunking the economic "domino theory"........