Nick Gillespie Should Be For It Too

Nick Gillespie posts a sharp rejoinder to the latest Jonathan Chait attack on him here.

(Of course, Chait, in the attack article, shows his ignorance of macroeconomics and modern monetary theory after ridiculing those who don’t understand economics. But I’ll just mention that in passing here.)

In the comments section, someone named Don said:

Also, totally dishonest to characterize Gillespie as an apologist for “deficit financed” tax cuts. I don’t think Gillespie’s proposal for “financing” tax cuts is by increasing the deficit? Did anybody read it that way? This guy is a total crank.

I will restate my reply to Don here:

I’m an apologist for deficit financed tax cuts to boost aggregate demand during a recession even if Nick is not. And I believe that if Nick were fully informed and thinking clearly about it, he would be too.

One reason I post here (Reason.com/blog) is to get more libertarians to see the light on this issue.

When 10% of people are unemployed, it means the country isn’t producing all it could. That is a disaster that holds back standard of living increases and compounds forever in the future (anti-compounds, if you will). And thanks to the fiat money system, it’s easy to get people to be more productive in a recession and boost aggregate demand. And the best way to do that is to deficit spend by taking less money in taxes until the economy no longer has excess capacity.

I’ll be attacked (as always) for stating this truth, but I figure it’s worth it if just a few intelligent people check it out or think it through on their own.

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2 thoughts on “Nick Gillespie Should Be For It Too

  1. “get people to be more productive in a recession”

    There is the question of what people would produce with the borrowed money. Does loaning people money guarantee they’ll produce a beneficial combination of goods and services as opposed to a wasteful combination?

    Also, I may very well have missed it, but I didn’t see a discussion of where the federal government gets its borrowed dollars and what the various effects on the economy are of that. Can’t fully assess the advisability of deficit spending by looking only at the flowing side of the pipe. Ditto interest on the debt.

    Thanks

  2. At the federal level, “borrowed money” doesn’t have the meaning you think it does. If we were talking about a state (or a household), you’d have a great point.

    These issues are covered better than I can do justice here at http://moslereconomics.com in the Mandatory Readings section. In essence though, we are creating money to pay these people to do better things than sit around and waste their time, and because aggregate demand has already collapsed, the normal penalty for this (inflation) is inoperative. The problem is that after the collapse of 2008, there just isn’t enough money available to keep everyone employed. So you create money to counteract that effect.

    Eventually, of course, you need to pull back, once excess capacity in the economy gets used up. Otherwise, you will create hyperinflation.

    Like a difficult brain surgery or chemotherapy, the cure may be dangerous, but when executed correctly (by people who know what they are doing at the Fed – maybe a big if in some periods) it is better than the disease.

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