Economic Alchemy
So Obama just signed a new "jobs" package
It's the first of several such measures Democrats have promised this election year to address the public's top worry: jobs. The measure includes about $18 billion in tax breaks and pumps $20 billion into highway and transit programs.
This is fascinating to me. Let's take it in reverse order, starting with the $20 billion in new spending. We are going to take 0.14% of the GDP out of some people's hands, who presumably thought they were employing the money productively, and put it into some other people's hands, and that is going to be a net jobs creator? ** Does this Keynesian myth really make sense to thoughtful people any more?
OK, but lets accept the logic - somehow if the government spends the money, it is more stimulative than if private people spend the money. But then the whole package is contradictory, because it includes $18 billion in tax breaks. Isn't that just taking money away from that great optimizer, the US Government, and handing it back to yucky old individuals who might just save it or pay down debt or something equally silly in the Keynesian world?
**Postscript- to answer a frequent comment I get, it does not matter if it is borrowed or taxed. Either way it takes money from some private purpose. There is only so much capital in the capital markets, and more government borrowing squeezes out private borrowing.
