the Bush League would point to the supply-side effects of their programs: to them, giving the rich more money (rewarding the rich for being rich) unleashes their creativity, allowing a faster growth of potential output (long-term aggregate supply), not just aggregate demand.
Julio Huato wrote: > Let's break down Bush's fiscal stimulus into its main pieces and use > basic macro to sketch its effects: (1) massive tax cuts for the rich > and (2) military spending. > > Tax cuts (delta T) to a group of people have a smaller multiplier > effect than additional government spending (delta G) targeted to same > group. In a ridiculously simple economy, delta Y = [1/(1-k)] delta G, > where Y is real output, and 0 < k < 1 is the marginal propensity to > consume. On the other hand, delta Y = [k/(1-k)] delta T. > > On top of that, it's well known that rich people have a substantially > lower k. You give them an extra dollar (in reduced taxes or a G > handout) and they are not likely to spend it in current consumption. > They'll put it away. But say their k = .5 (i.e. they spend in > consumption one half of the extra dollar the government gives them), > then the their T multiplier is 1 -- i.e. there's no multiplier at all, > since you just get delta Y = delta T. Now make k < .5 (not unusual > among the extremely rich, main beneficiaries of Bush's largese) and > you have a contractionary effect of tax cuts! > > Military spending is a form of G, which has a greater multiplier > effect than T. Let alone the fact that it is fundamentally wasteful > (of people and resources), especially when the war is contrary to the > interest of regular Americans. The higher multiplier items in > military spending are the salaries of soldiers -- again, because they > have the highest k's. G money appropriated by Bechtel, Halliburton, > etc. doesn't have much of a multiplier effect, because the Cheney's of > the world have low k's. Moreover, in the long and not-so-long run, a > large portion of this type of G amounts to massive public divestment, > as documented by Stiglitz and Bilmes. -- Jim Devine / "Nobody told me there'd be days like these / Strange days indeed -- most peculiar, mama." -- JL. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
