Cut Taxes or Raise Spending

First, I read this article about the White House's proposal to strengthen the economy. Which of course is a big trick (it's a small article, go read it). It forced me to think about the fact that presidents in general face similar problems and have less of an influence in solving these problems than most Americans think... but I feel like I've mentioned that repeatedly.

That being said the House and Senate are both drafting and voting on stimulus bills. I found myself a bit apathetic yesterday after I heard that not a single republican had signed the bill in the House. The vote was 244 to 188, with 11 democrats and all the republicans voting against it. The republicans reasoning was that they wanted more tax cuts. Hm...

This is one of those counter intuitive phenomenons that pains me every time I hear it. To stimulate the economy government has two options; cut taxes or raise spending. This is called fiscal policy. They both work, but cutting taxes is more politically popular while raising spending tends to be more effective. In the end they really have the same outcome. If you keep the same taxes but spend more you incur debt. While if you keep spending the same and cut taxes you... incur debt. And cutting government spending at a time like this has the opposite effect, so this whole "size of government" debate that centers around fiscal policy is silly. Here's the thing, if you cut taxes it takes a while before people see any gain. Also, this would seem to benefit those who pay the most in taxes. Which isn't really the point (man I sound like a socialist!). If spending is increased that money goes into the economy almost instantly, and better yet it has multiplier effects. Say the government chooses to spend an extra dollar on energy research. Okay, a university gets a grant, they pay the professor, the professor buys lab equipment, the equipment company buys more supplies, hires more people, etc. It's basically the opposite of what is happening in our economy right now that is causing people to lose their jobs. Of course, some smart people disagree. He's got a point too. Governments do tend to waste money, and I kind of wonder if taxing people less is inherently more efficient due to the dead weight loss of income received from taxes. One thing that is agreed upon is that one of the two or some combination there of needs to happen quickly.

That's why I got upset yesterday. It's just so sad. People are going to lose houses, jobs, and marriages over this and our political system still can't work together. I am convinced that politicians know this stuff. I mean, I do and most of my economics teachers were fairly conservative. Politicians often won't act on what they know is right because it's unpopular. I understand that, but can't you explain to your constituents a better reasoned approach to the problem?

Randomly, this is Obama's speech concerning this plan. FWIW Whitehouse.gov is pretty awesome.