Gov Growth Results in Fewer Supporting Stimulus...

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An argument for stimulus through tax cuts paid for through equal cuts on government.

Keynes supporters claim cutting Gov spending will hurt the economy due to those dollars not being injected into the economy. However, they seem perfectly fine with removing ever more dollars from the economy through increased taxing.

Furthermore, Keynesian promoters tout the benefits of Gov spending on the economy except in the case of tax cuts which they deride as "spending".

One would think that stimulating private enterprise through tax cuts funded with a commensurate decrease in government services so as not to increase government debt would stimulate the economy without increasing debt would be "stimulative". This suggestion is roundly ridiculed by Keynesians, though.

What Keynesians refuse to accept is that while funding stimulus through private sector taxes may make some sense when the government accounts for only 10% of economic activity, it makes much less sense when the government accounts for 50% of economic activity.

Look to our experience.

As time has passed the US has had less and less private sector from which stimulus funding could be sourced due to government growth. When at one point stimulus relied on the private 90% of the economy for funding it is now forced to rely on the private 50% of the economy for funding. The gap is absorbed by increasing debt which the private sector pays for later.

The result is that fewer and fewer are shouldering the burden of stimulus funding as government grows.

To a Keynesian the only source for funding stimulus is the private sector despite the size of the private sector relative to the economy as a whole. They refuse to accept that perhaps government with its ever increasing presence in the economy should sacrifice for the sake of stimulus as well. As a result debt grows but according to Keynesians it should be ignored because "its not debt when you owe it to yourself".

At this point the Fed is clearing US debt from the market at the rate of 70% of new US debt issuance. The fat lady is singing.

(Some percentages above are rounded for simplification)




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