Re: Deficit - so what?

[larson@xxxxxx]

I was almost going to side with Milton Friedman here, and say "any tax cut is
better than any tax hike". True as that might seem, I think one has to be very
careful in advocating tax cuts exclusively for the wealthy. First of all, there
is no immediate link between large personal wealth and productive corporate
investment - there are tailored credit channels for that - which means that a
tax cut for the highest income or wealth brackets in a recession (as the only
measure to fight the recession) will have no effect whatsoever on the
macroeconomy. Secondly, even if the really wealthy would indeed lend their
money to upstart companies with no easy access bank credit, those companies
wouldn't last ten minutes without prospective demand. And in the last resort
that demand always has to come from the bulk of households. So to make it
attractive to invest lower wealth taxes productively you MUST cut taxes for the
middle class. Third, I find it morally reprehensible to flood people who
already have more cars than they can drive in a work week with more money while
those who can barely cover their necessary daily expenses should receive no
relief at all. So, after all, Friedman's resistance to tax hikes is refreshing
and encouraging but the moral bottom line is not.

I should, however, add that from a high tax European horizon it is easy to
conclude that high taxes and big government are neither good nor bad per se
(it's how you use the resources that counts) but that a big government must
always be combined with some sort of safeguard against the nightmarish effects
of budget balancing. That safeguard should be operative anywhere where any
fraction of GDP is run through a public sector - e.g. by making deficits
mandatory whenever there is unemployment - but our need for it increases
proportionately (perhaps even exponentially) with the size of the public sector.

I have first hand experience of two countries with public sectors processing 50-
60% of GDP, and I can assure you that you can feel, smell, taste, see, hear and
touch with your bare hands the difference between budget balancing in that
sector and purposeful use of the resources. With no safeguard I go for minimal
governments; with a safeguard it's a completely different question.

/srl

Quoting Sean Reilly <seanjreilly@xxxxxxxxxxx>:

>
> Why is it a bad thing to offer the tax cut for the so-called "rich",
> when it
> is they who will invest it, thereby producing jobs for the
> underemployed
> folks that the Dems just want to hand the cash to?
>
> Politically, it makes the underemployed more dependant on the Gov't. and
> the
> Dems get to say that they fought the so-called "rich"  {insert industry
> of
> the week here), or that it is because of them being in office that Joe
> Average receives his Entitlement Check in the Mail from the Government.
> So,
> the thought is that Joe Average is too stupid to think for himself and
> decides that Rob Politician is "on his side".  So, Joe Average goes to
> the
> polls and votes for Rob Politician.  In the final analysis, the
> Democrats
> are using their time in office as a welfare program in which they hand
> out
> the moneys that were stolen from tax paying citizens, like myself, to
> Joe
> Average, who refuses to go out and work for his money.  Most
> Republicans
> actually take a pay cut to work for the Government, which is rather
> telling
> if you think about it.
>
> Sean
> ----- Original Message -----
> From: "William F Hummel" <wfhummel@xxxxxxxxxxxx>
> To: <pkt@xxxxxxxxxxxxxxxx>
> Sent: Thursday, November 29, 2001 1:41 PM
> Subject: Re: Deficit - so what?

--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde
Telephone: (+45) 4674 2910