Friday, September 09, 2011

Do Republicans need more Econ 101

Justin Wolfers on Marketplace:
"But the idea that in the midst of near-record unemployment that what we should do is cut back on government spending and fire more teachers and policemen is completely absurd. Never in my life have I felt a greater disjunction between the standard approach to economics and political discourse."



But what if you took econ 101 (I literally teach econ 101) and learned about ricardian equivalence, or used the standard 101 textbook by Mankiw who argues that the multiplier for spending is much lower than the multiplier for tax cuts, and hence cutting spending to finance tax cuts is a net benefit for the economy. And then, you listen to mainstream economist Douglas Holtz-Eakin who argues that what matters is not consumer confidence but producer confidence, and producers worry about long term deficits, and thus cutting deficits can increase investment and job growth?
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