Monday, April 13, 2009

Which Has the Greater Fiscal Impact: Tax Cuts or Defense Spending Increases?

Paul Krugman noted that Georgia’s Senator Saxby Chambliss has hypocritical views when it comes to the current fiscal policy debate:

"[W]hen it comes to stimulating the economy," Chambliss said, there's no better way to do it than to spend it in the defense community." On Sunday, Paul Krugman appeared on ABC's This Week, and picked up on the same thing, and called out Congressional Republicans for what one might call the "Chambliss hypocrisy". Here's Krugman: What's so wonderful is watching Republican congressmen saying, "But this will cost jobs!" The very same Republican congressmen who were denouncing the stimulus, saying government spending never creates jobs, but cutting defense spending costs jobs. It's wonderful.


It is also standard faire for Republicans to argue for more defense spending and less taxes at the same time. Earlier in this debate, we heard some Republicans telling us that tax cuts would lead to more bang for the buck than increases in domestic government spending as if the marginal propensity to consume were actually greater than unity. So why not argue that the direct impact on aggregate demand for spending a dollar on additional weapons would be greater than the direct impact on aggregate demand for spending a dollar on school buildings? Yes, the proposition is absurd but so is most of the rhetoric coming from the Washingtonian Republicans!

3 comments:

Greg Hall said...

In reference to Guns & Butter, one is reminded of Prof. Jane Jacobs. The fact is in this current environment, neither approach is likely to work. See: http://www.debtdeflation.com

wellbasically said...

If Chambliss can get away with this, then Krugman is as much to blame as anybody for his kindergarten economics lessons and FDR-based justifications for everything he wants.

There really is no logical way to argue that stimulative spending on teachers salaries is better than stimulative spending on tanks and bombs.

Anonymous said...

"There really is no logical way to argue that stimulative spending on teachers salaries is better than stimulative spending on tanks and bombs."

Seriously? Well so much for logic, then.