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Re: “Paul Ryan's budget plan was so bad that even Rep. Mike Ross was against it

Hey, fukdcountry, your view, while logical to those who haven't taken economics, is slightly off. If I lower your taxes, you will spend a certain part of your now greater disposable income: marginal propensity to consume x (income-taxes). Here's the thing: mpc is always less than 1, so a tax cut of a dollar results in, say, 80 cents in investment (mpc=.8). That's not bad, but consider this: a one dollar increase in government purchases leads to a one dollar increase in surplus. One dollar is greater than 80 cents.
Not a big deal, right? Well, that was only the first round. Fukdcountry, say that you invest 80 cents, and then the entity you invested with spends another 80% of that. The series will continue, and you end up with a multiplier to surplus of mpc/(1-mpc) (for this, that's four). However, when the government spends money--which it has to gain (mostly) through taxes--they have the same series occur. Since their initial purchase was one dollar, the series is larger: 1/(1-mpc), or 5 here. Furthermore, that surplus will help others: a new road will create business (for you to invest in, fukdcountry!) and the like. Investment does similar things, but the effects, as shown, are not quite as strong.
I'm not about to preach my ideals, but I want to make something clear, something no one acknowledges in the current debate. Most people shouting "LOWER MY TAXES, I PAY TOO MUCH AS IT IS! CUT SPENDING TOO! DEFECTS SUCK!" don't have so much as an introductory knowledge of economics. Even if a politician goes up in front of congress and uses real economics, who will listen to him talk about aggregate supply and demand? One of many reasons we're not getting anything done is because it's costly to do "intelligent" things like that in congress. That's why everyone's just yelling.

And fukdcountry, take a class in macroeconomics. Yes, you're right, in the short run, the Fed may screw us over. However, look what Volker did in the 70's and 80's. Stuff was really bad back then, but history has shown that he was right. Please, educate yourself, open your mind, consider both sides. That's what we really need.

Posted by EconMinor on 04/27/2011 at 1:00 AM


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