The Obama administration’s fiscal boost program has also significantly helped the economy: aid to impacted states has been a big win, the jury is still out on the effect of the tax cuts in the stimulus, and the flow of government spending on a whole variety of relatively useful causes is in train and is boosting production and employment in the same way that everyone’s boost to spending boosts production and employment.
And the cost of carrying the extra debt incurred is extraordinarily low: $12 billion a year of extra taxes would be enough to finance the fiscal boost program at current interest rates, and for that cost American taxpayers will get an extra $1 trillion of produced goods and services and employment will be higher by about ten million job-years.
For two and a half centuries economists have believed that the flow of spending in an economy goes up whenever groups of people decide to spend more.
- Sometimes and to some degree these increases show up as increases in prices
- and sometimes and to some degree as increases in production and employment.
- Sometimes these increases come because there is more spendable cash in the economy
- and sometimes because changes in opportunity cost make people want to spend the cash they have more rapidly.
But always it has been that spending goes up whenever groups decide to spend more–and the government’s decisions to spend more are as good as anybody else’s, as good as the decisions of the mortgage companies and new homebuyers to spend more buying new houses during the housing bubble of the mid-2000s or of the princes of Silicon Valley to spend more building new companies during the dot-com bubble of the late-1990s.
Chicago economists’ arguments that fiscal stimulus can’t work are at best incoherent and usually simply wrong.
Republican politicians’ arguments that fiscal stimulus isn’t working are simply ripped out of the Newt Gingrich playbook: lie all the time.