Re: Reynolds on Keynes, Minsky & Vulgar Keynesianism

["William F. Hummel" <wfhummel@xxxxxxxxxxxx>]

What's wrong with the following analysis by Alan Reynolds?

>After all, if prosperity were just a matter of putting money
>into consumers' pockets, what difference could it make if the
>government takes the money from Smith and gives it to Jones? This
>redefinition of taxpayer-financed gifts as "rebates" makes
>no more sense than dropping money from helicopters, yet it is
>being taken seriously by those who refuse to take economics
>seriously.

The rebate does not take money from Smith and give it to Jones.
Nor does it, as some politicians argue, come from creation of a
new 10 percent tax bracket that will apply to the first $6,000 of
taxable income for a single person, $10,000 for single parents
and $12,000 for married couples.

This is all double talk because money is fungible.  Every dollar
of rebate must be recaptured by the Treasury one way or another.
Otherwise the rebate would increase banking system reserves and
cause the overnight interest rate to collapse.

The rebate simply affects the amount of budget surplus, which
will still be positive after the rebate and the proposed cut in
tax rates.  Even if the budget were in deficit, the rebate would
not increase anyone's tax bill.  However it would increase the
deficit and require the sale of Treasury securities to recapture
that spending.  But those who bought the Treasury securities
would be gaining interest-bearing and saleable assets for their
money.  So who are the Smiths that are paying for the rebate?

William F Hummel