krugman.blogs.nytimes.com - 1/16/2009
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Mark Thoma says he was thinking about thinking about this; I was actually thinking about it. Anyway, it's true: the cost of an effective fiscal stimulus, in terms of adding to the government's debt, can (and should) be much less than the headline cost.
Consider an increase in government ...
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TRUTH ON THE MARKET —
... and here . This has so many holes in it it’s Swiss cheese. Swiss Cheese Economics, to coin a phrase. My favorite part is this: But if $100 billion in spending raises GDP by $150 billion, and the marginal tax rate is 1/3, $50 billion of the spending comes back in additional revenue. So bang for the buck — increase in GDP per dollar of added debt — is 3, not 1.5. Since the main concern about stimulus is that it will add to government debt, it’s this bang for the buck measure, rather than the multiplier, that’s relevant. And 3 sounds a lot better than 1.5. Mirabile Dictu! ...
Economics in 4 Words: People Respond to Incentives
EclectEcon —
... When Professor Krugman wrote about the stimulus (e.g., here, here, and here),
he did not devote even one sentence to the incentives that would be
created by the federal spending. If he thought incentives mattered, why
is lots of attention devoted to "multipliers" and none to incentives? ...
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