First, when the government mails you a check, it's essentially making you a loan. That's because they're sending you money that they'll have to recapture with higher taxes in the future.
Hmm – sounds like Robert Barro espousing his Ricardian Equivalence proposition that any change in taxes not accompanied by a permanent change in government spending will be seen as only transitional. As such, the tax cut will be 100% saved and not increase consumption at all. Of course, transitional increases in government consumption could raise aggregate demand even in a Ricardian Equivalence world. Ah, but then that’s what some Democrats have proposed to do.
But then Steven sums up with this:
In sum, you (along with the president and the majority of Congress) are asking us to:
shower people with loans to encourage reckless spending;
somehow expect that the loan recipients will feel both richer and not richer at the same time (so that they'll spend more without working less), and;
do all this in the name of delaying the sometimes painful adjustments that are going to have to get made a year down the line in any event.
What was his objection? That people don’t behave in the way the Barro-Ricardo model of consumption predicts? That somehow the idle production from the types of recessions that Keynes wrote about is a better use of resources than the consumption from induced by tax cuts? Or is Steven saying such recessions do not occur in the first place? After all, he sees the problem not as an insufficiency of aggregate demand but as the need to let “unhealthy industries” adjust.