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!