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That paper is funny. In economics, it's possible to create a mathematical model that demonstrate anything you want. How was what John Von Newman said? "Give me

That paper is funny. In economics, it's possible to create a mathematical model that demonstrate anything you want. How was what John Von Newman said? "Give me four parameters and I will fit an elephant" or something like that. The private sector invest to get profits. If it doesn't get profits it will not invest. If the private sector investment fall, and nothing compensate it, the GDP will fall. If the GDP fall the population will suffer. So, in order to keep the economy going, the government share of GDP will grow (we can see a good example now with the pandemic). When those think tanks, like the one of your link, ask for a reduction of the government spending, normally what they are asking is put my profits before the welfare of the population. As they can't say it that way, because it would be too obvious, they say: "trickle down economics".

CryptoPunk 6y ago
Ah yes, studies like the one on tax cuts for the rich are fine, but not ones on government spending levels. Any way, you're over-simplifying how an economy works. If there are not enough profitable investments to maintain current investment levels, then investment levels should decline. The government should not invest unprofitably just to maintain current levels. And no, GDP will not drop. Current productive capital will generate the same value of goods/service, and prices will drop to clearing level until everything produced is consumed. It's better for the population to enjoy higher consumption levels, or to create stockpiles for the future, than have their labor and capital output diverted to projects that will provide them with less resources than they put in.
- RobertoG 6y ago
  "And no, GDP will not drop. Current productive [..]" I don't understand what you are saying there. GDP is a function of spending in the economy. If there is a fall in investment there is a fall in spending. If it's not compensate somehow, GDP will fall. "[..] than have their labor and capital output diverted to projects that will provide them with less resources than they put in." I don't understand that neither. Is better to have people unemployed than put those people to work?
  - CryptoPunk 6y ago
    Spending doesn't decrease when investment drops. The spending is reallocation to consumer spending.

CryptoPunk 6y ago

Ah yes, studies like the one on tax cuts for the rich are fine, but not ones on government spending levels. Any way, you're over-simplifying how an economy works. If there are not enough profitable investments to maintain current investment levels, then investment levels should decline. The government should not invest unprofitably just to maintain current levels. And no, GDP will not drop. Current productive capital will generate the same value of goods/service, and prices will drop to clearing level until everything produced is consumed. It's better for the population to enjoy higher consumption levels, or to create stockpiles for the future, than have their labor and capital output diverted to projects that will provide them with less resources than they put in.

RobertoG 6y ago
"And no, GDP will not drop. Current productive [..]" I don't understand what you are saying there. GDP is a function of spending in the economy. If there is a fall in investment there is a fall in spending. If it's not compensate somehow, GDP will fall. "[..] than have their labor and capital output diverted to projects that will provide them with less resources than they put in." I don't understand that neither. Is better to have people unemployed than put those people to work?
- CryptoPunk 6y ago
  Spending doesn't decrease when investment drops. The spending is reallocation to consumer spending.