Not Your Father’s Recession

Over at The Corner, Stephen Spruiell is unimpressed with the Obama administration’s decision to effectively spread out its tax cut over time by withholding less money from workers’ paychecks each month:

To me, this demonstrates just how much of the administration’s thinking is guided by Keynesian economics, pump-priming, aggregate-demand-goosing, whatever you want to call it….But in giving small tax rebates to middle-income workers — workers whose incentives are mostly fixed — the administration chose to do the politically popular thing instead of the right (or correct, if you prefer) thing. The right thing to do, if you’re going to cut taxes, is to cut them for businesses and high earners so as to strengthen their incentives to expand, invest, produce more, and work more efficiently. Of course, these are the groups whose taxes Obama seeks to raise.

Fascinating. Not that Spruiell favors tax cuts for the rich. That goes without saying. But why does he think lowering taxes on the rich will raise their incentives to expand if there are no customers out there to buy their tidal waves of new stuff? This is a massive balance sheet recession, after all, characterized by relentless and still ongoing deleveraging. So where’s the demand-side money going to come from?

I understand that conservatives owe fealty to supply-side economics at all costs, but this is ridiculous.


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