algebraist's Journal: The Bush tax cut and deflation

Y'know, there may be a method to George Bush's "madness" about the tax cut. There's agreement it is too small to stimulate the economy much. So there's a puzzle.

But the main problem facing the U.S. economy is deflation, a spectre that's haunting other world economies as well. After a point, central banks can't do too much about deflation. One way to handle it is create some inflation. Printing money is one not-so-good way of doing that. The other way is to have the government spend more than it has.

Maybe the Bush tax cut is a way to arrange that.

A Republican can't come out and argue for bigger government spending, even if it is a good idea. It gives their big spending Democrats too much to praise. And there are folks in his own party who would fight it -- the fiscal conservatives, the same folks who are balking but compromising on the tax cut. So, knowing the Congress can't resist overspending some -- the pork must flow, y'know -- how to arrange that? Take some of their money away.

So maybe a bigger tax cut would be better, for roundabout reasons.

SARISSA, not THARISSA

[algebraist]

Thorry folks, I must have been programming in LISP too long: It's called a sarissa.

You can read more about it [macedonia.info].

Re:SARISSA, not THARISSA

[salimma]

Indeed, you even replied to the wrong journal entry :). d'oh. Dude, get some rest.

Re:SARISSA, not THARISSA

[algebraist]

Thanks, fixed.

Tax cut to stimulate inflation

[salimma]

So maybe a bigger tax cut would be better, for roundabout reasons.

This would work provided the beneficiaries of the tax cuts plough the money into spending. Given that most of the cut goes to high-income earners, there is a worry that the saved money might flee the country in search of higher interest rates and appreciating values elsewhere, say, Europe.

Then again, *that* would be inflationary as well - the dollar will slide [slashdot.org] against other major currencies, making imports more expensive and American exp