Friday, April 10, 2009

Economic Conventional Wisdom

I was planning to wedge this into today's earlier post, but I couldn't think of a clever segue.

So I'm playing hockey this weekend, and an economic discussion starts up (more ubiquity.) Everyone there, conservative and liberal alike, agreed that a huge government spending stimulus package was necessary. The reasoning was straight out of the political/media handbook - you've got to spend money to create jobs, get the economy moving again, etc. And while you'd be hard-pressed to find anyone who disagrees with this premise these days, publicly at least, I'm forced to ask...really?

We really need to spend $850 billion, money we don't even have, in order to start making money again? Why do I continually fail to see the logic in this?

Let's instead think about this: What if we reduced the capital gains tax rate to 0% to induce investment, and lowered the business tax rate to 15%? If more businesses were encouraged to open, if businesses had more money to re-invest in their own growth, and to hire more workers, wouldn't this "get the economy moving again" as well? And without the middleman of a corrupt and wasteful government, doling out money to friends and pet projects?

But alright, so you're not into the trickle-down thing. You're a demand-sider. So instead of lowering taxes on investment, let's lower income taxes for everyone...with more money to spend, would't that create greater demand for products, and thus create more jobs? Isn't either one of these solutions more intuitive and more efficient than borrowing huge sums to build more F22-A Raptors and bridges to nowhere?


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