3 ms·

I saw it argued recently, by an economist, that tax cuts and increased government deficit spending should have the same effects on the economy. I think the ess

I saw it argued recently, by an economist, that tax cuts and increased government deficit spending should have the same effects on the economy. I think the essence of the argument is that either one leads to increased saving as people anticipate future tax increases. I don't know if I believe this is completely true, since the money at least initially goes to different people and people aren't actually rational actors, but I'm willing to accept that it's at least somewhat true. That led me to the thought that supply-side economics, as the Republicans have been pressing on us for the last 40 years, is essentially Keynesian, or at least shares with it the belief that fiscal policy can be used to heat up the economy at one point in time, with benefits realized at a later point. The difference is that Keynes's recommendation was for fiscal policy to support the economy in recessions, and then cut back on spending (or equivalently, by the above argument, raise taxes) in boom times, while the supply-siders seem to want to cut taxes irrespective of the state of the economy, and never raise them. I'm not an economist, so I don't know how accurate this is, but I find it striking, given the degree to which Keynesian economics has come under criticism in recent years.

nickik 8y ago
The problem with this whole theory is that first of all, the whole future anticipation of taxes simply does not exist empirically specially not at low levels. You are correct that Keynesian share some things in particular situation with supply siders but its very superficial and only in very specific circumstances. In theory tax cuts during a recession are a Keynesian policy but the WASTE majority of Keynesian prefer INCREASE in spending. So in terms of the real world, there is almost never any overlap. Keynesian hardly ever actually argue for lower taxes (because they are usually leftists who want more government). At the same time supply sider do not want tax cuts in order to boost Aggregate Demand in a business cycle but rather have a more competitive economy in the long term. I would also recommend strongly to not look at these as two types of economic theories. Keynesian is a very specific theory about a specific situation. While supply side economics is a general branch of economics that looks at growth. The terms here are really misleading, most economists including people who call them-self 'supply side' think that demand is equally important. Language really makes this whole discussion incredible complex.

nickik 8y ago

The problem with this whole theory is that first of all, the whole future anticipation of taxes simply does not exist empirically specially not at low levels. You are correct that Keynesian share some things in particular situation with supply siders but its very superficial and only in very specific circumstances. In theory tax cuts during a recession are a Keynesian policy but the WASTE majority of Keynesian prefer INCREASE in spending. So in terms of the real world, there is almost never any overlap. Keynesian hardly ever actually argue for lower taxes (because they are usually leftists who want more government). At the same time supply sider do not want tax cuts in order to boost Aggregate Demand in a business cycle but rather have a more competitive economy in the long term. I would also recommend strongly to not look at these as two types of economic theories. Keynesian is a very specific theory about a specific situation. While supply side economics is a general branch of economics that looks at growth. The terms here are really misleading, most economists including people who call them-self 'supply side' think that demand is equally important. Language really makes this whole discussion incredible complex.