Monday, December 1, 2008

Jonah Goldberg’s Stimulus Proposal – Temporary Tax Cuts

If you want your kids to learn economics, do not send them to the National Review school of economics:

But rather than blow money on a lavish reenactment of the New Deal, or continue bailing out undeserving corporations, why not really think outside the box? Rep. Louie Gohmert (R., Texas) suggests an across-the-board reprieve on paying 2008 income taxes. This would leave an extra $1.2 trillion in the hands of Americans, who are the best stewards of their own money.

I guess Mr. Goldberg never heard of the Ando-Modigliani life-cycle model of consumption or Milton Friedman’s permanent income hypothesis. These models would predict that much of this tax rebate would be saved and not consumed. Hey, wasn’t that the explanation for why Bush’s version of this did so poorly as far as stimulating aggregate demand?

Update: I emailed Mr. Goldberg a link to this post and he was not particulary amused. His retort?

Heaven forbid Americans save their money, which usually amounts to putting it in the market, 401ks

That confirms it - he has no idea that the issue at hand is insufficiency of aggregate demand yet he deems himself qualified to write a post on this topic. Go figure!


Barkley Rosser said...

Yeah, it takes a card-carrying conservative to forget Milton Friedman's Nobel work on the permanent income hypothesis, not to mention rational expectations. Gag.

Peter Dorman said...

And the tax rebates would be concentrated in the highest income groups -- not an accident from the NR perspective, but grossly inefficient as stimulus.

Shag from Brookline said...

Take it easy on Jonah who is still being weaned, weenie that he is. In fact, he helps to advance President Elect Obama's economic plans with his ignorance.