“I pointed out a flaw in the demand-side argument: the assumption that spending automatically creates jobs. So, we must consider what kind of spending and how it's financed.
There's a serious flaw in the supply-side argument too: the assumption that ALL taxes destroy jobs. Now there's a partial truth: SOME taxes do destroy jobs--but not the ones the supply-siders single out for opposition. Supply-siders object to capital gains, dividend, and other taxes on wealthy "job-creators", as well as taxes on business profits. In fact, such taxes capture passive income, and may even stimulate productive investment.
What taxes do destroy jobs? Sales taxes, of course. But--fasten your seat belts--the worst offenders today are the payroll taxes supporting Social Security and Medicare. These have become major regressive job-killers for small businesses and their low wage employees. Instead of trying to protect "middle class" earners under $450,000 from a modest income tax increase, how about protecting Social Security payers from that 2% increase? How about eliminating the Social Security cap (currently $113 of wage income) and lowering the rates? Or increasing the earned income credit for low wage earners to cancel payroll taxes?”
“To the contrary! Many of our cities desperately need more spending to repair schools, hospitals, streets, sewers, water systems and parks. California's Prop 13 and subsequent roll-backs and restrictions on property taxes have left many cities unable to vote for services a majority would willingly pay for.”
“Thanks. Let me clarify: It's a fallacy to assume that spending AUTOMATICALLY leads to production and jobs. The 19th century British economist John Stuart Mill makes the same point when he writes that "Demand for commodities is not demand for labour." (Principles of Political Economy, Bk I, Ch 4, Par 4). If spending doesn't automatically create jobs, then we must carefully consider the type of spending, and in the case of government spending, how it's financed.
I'm especially troubled by the spending-automatically-creates-jobs assumption when it's used to justify military spending or at least to claim that military spending stimulates the economy. First of all, as demonstrated by Heidi Garrett-Peltier of the Political Economy Research Institute of U Mass, military spending is extremely capital and resource-intensive, creating few jobs per dollar spent (and diverted from more productive social spending). (http://www.peri.umass.edu/236/hash/652a15c26f/publication/284/). Second, there are other possible explanations for apparent wartime stimulus--see my response to an article by Paul Krugman in the NY Rev of Books, claiming military spending helped Mussolini's Italy recover early from the Great Depression: http://mcleveland.org/blog/index.php/2010/04/can-invading-a-small-third-world-country-stimulate-the-economy/.”
wolfej50 on Jan 2, 2013 at 09:08:09
“Thank yo for responding. As I said, I believe I understand what you meant and agree. It's just that the unqualified statements implied something else. I also think you are simplifying military and social spending. Some military spending does stimulate and some types of social spending does not. For example, subsidized housing does little to inject capital into the spending cycle. (Which is NOT to say it shouldn't be done.) Purchasing military supplies and services does. The difference between military spending and, say, infrastructure spending is that infrastructure has immediate and direct benefits in addition to the injection of capital.”
“I thank all of you for your comments. Here are replies to some of them, not necessarily in order.
I was addressing the pop Keynesian idea that any old government spending will stimulate the economy. Keynes was much more sophisticated, but not always clear or internally consistent. He did say something very important: government spending can stimulate the economy. He just didn’t say what kind.
I disagree with economists like Paul Krugman that we can essentially borrow and spend our way out of this recession/depression. No, we need to return to the high progressive taxes of the 1950's and '60's; reinstitute tough anti-trust; break up the big banks; increase social spending and non-pork infrastructure spending; and drastically cut military spending.
Much of what's wrong with the US economy today--including the real estate bubble and crash-- results from increasing policy bias favoring the 1%. See Jacob Hacker and Paul Pierson on Winner-Take-All Politics.”
Gidster on Dec 31, 2012 at 11:10:04
“Thank you for the clarification... That does indeed sharpen your points, and eliminate the supply side only inference.”
MJTM on Dec 31, 2012 at 09:30:44
“I think a real problem, Mary, is that there is no such thing as non-park infrastructure spending into today's politics.”
wolfej50 on Dec 31, 2012 at 09:21:56
“Reading your entire blog, I believe I agree with your points. However, your title and several of your sentences take on a absolutist tenor, e.g., "It's a harmful myth that spending drives the economy." Subsequent sentences don't just explain this statement, but contradict it. This leaves the reader unsure about what you are really saying.”
wsdave on Dec 31, 2012 at 05:53:30
“Since even in the 50's and 60's, revenues only averaged about 18.5% of GDP, then why not leave them where Clinton had them (39%), since managed nearly 21%?”