Thursday, June 16, 2011

Fiscal Policy: Lamar Alexander Has It Exactly Backwards

Brian Beutler reports on the “logic” of two Republicans opposing President Obama’s proposal to extend the payroll tax relief. One of the opponents is Senator Lamar Alexander:

We don't need short-term gestures, we need long-term strategies that build into our system simpler taxes, lower taxes, fewer mandates, lower costs, more certainty, any changes in the debt structure of tax reform ought to come out of the Vice President's talks or part of a major tax reform.

The current unemployment problem is one of a lack of aggregate demand, which is precisely a short-term problem. The long-run fiscal policy problem, however, is the deficit. Clearly what we need is short-term fiscal stimulus with long-term fiscal restraint. Of course, Senator Alexander is simply echoing the standard Republican mantra. Which is why the leaders of this party should not be trusted with macroeconomic policy.

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