Wednesday, May 14, 2003

The theory behind Dubya's tax cuts is to give money to people who will use it to invest in new plant for their businesses, thus creating jobs, boosting the "supply side" of the economy. It works like this:

I have called three of my friends who have small companies here in Spokane. I have asked them if they think that the tax cut that Bush Co. wants will encourage them to hire more people. All three laughed. Here in a nutshell is what they said.

They can hire as many people as they want right now. If they don?t have the cash they can borrow the money. Interest rates are so low that it does not take much to regain their investment. The problem is that there is no market for the things they are making. No amount of extra cash will get them to increase production. And with no increase in production it does not take a genius to guess that they won?t be hiring in areas of marketing or sales.

It is a chicken or egg thing. In this case the employment or extra money for people to buy their goods is what is needed for them to expand their business. This is real rocket science. *NOT* It is what most economists have been saying all along.

"Most economists" including Brad DeLong and the much-vilified Paul Krugman.

In short, if you want to stimulate the US economy quickly -- and with the Fed now openly acknowledging the possibility of deflation, well, you certainly ought to around now -- you want government measures which will put cash in the hands of people who will spend it, not people who already have excessive amounts of liquid cash and no good idea of what to do with it.

Which sounds like just the time to propose new taxes on the poor, if that's what's needed to finance preconceived tax giveaways for the rich...


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