Quote:
Originally Posted by Undertoad
Keynesian economics, if the economy is shrinking then government should (probably) increase spending to alter the equation of moving money, and then, government should (probably) cut spending when the economy is growing.
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That is the obvious solution when assuming economies are open loop. But reality is closed loop. What did Clinton do to later cause economic prosperity? He raised taxes.
Simplistic thoughts assume A results in B. We see this especially in electronics. When A caused B causes C causes D causes E causes A, then nothing is obvious anymore. A decrease in C causes an increase in A resulting in completely different reactions from A to B. A major difference always exists in open loop and closed loop solutions.
In economics, sometimes increasing taxes or spending can make things better or worse.
The massive late 1970s economics malaise created by 1968 Nixon and Vietnam was solved by massive interest rate hikes and a resulting removal of money from the economy. Unfortunately nobody had the balls to do that until Carter and Volker did it.
The massive 2007 economics malise created by George Jr's Mission Accomplished, et al was solved by massive monetary infusions resulting in money that had virtually disappeared.
Each economic malise is unique. Until details of a recession are known, then best is to inject more or less money. Nobody can say more without extensive details.
Bernanke saved our ass. He said he would not repeat mistakes of 1929 when government did so much harm by installing fiscal constraint. Sometimes injecting more money (ie 1970s) can make things worse. But Bernanke did the right thing so that 40% of jobs were not lost. He injected more money saving our economy. The devil is in those details.
Same applies to taxes. Sometimes tax cuts are good. Other times a tax increase is better.