Reply #49: Um...that is "spending in the community" and it creates jobs

[jeff47]

"Simply handing out cash results in people buying more of whatever stuff is already available, like food and beer."

Somebody has to sell the food and beer. When demand goes up, they hire people to sell more food and beer. Those people now have money, and thus can buy their own food and beer. Increasing demand even further.

Now, the real economy isn't restricted to food and beer, but it principle holds - people who get a job buy stuff. That increases demand, leading to more jobs, leading to more people buying stuff. And so on.

Tax breaks are a really, really inefficient way of doing this. You lose a big pile of revenue and then hope that the wealthy folks will spend a buck or two in your jurisdiction. Since we've tried this approach several times, we've been able to measure the efficiency, which is between 40-70% (each dollar of tax cut created 40-70 cents of new revenue. That 70% is an outliers though - it happened when we cut the top marginal income tax rate from 90% to 50%. There's no place left to make cuts anywhere as large.)

It's much, much, much, much more efficient to just hire people in your jurisdiction. They now have jobs, thus they now spend and the local businesses hire more people to meet their needs. This works even if your new hires are paid to dig and then fill in holes in the ground. The last time we seriously tried it (Things like the WPA in the Great Depression), we actually dug ourselves out of a far deeper economic hole...up until the conservatives screwed up the recovery in 1937 by abandoning the effort.

The economy had actually recovered before WWII started - WWII just caused the government to hire a hell of a lot more people, and spend a hell of a lot more money, resulting in a large economic boom.

So yes, it is possible for a government to spend it's way into prosperity. They just can't do it forever. But it's a really, really good idea to do when the economy is in the toilet. They just have to pay off the debt when the economy is good.