Cowen/Tabarrok: Does Fiscal Policy Work?
Imagine it’s 2008 all over again. The economy’s in the dumps, and life is bleak—people are spending less and saving more. As consumer spending falls, companies
Imagine it’s 2008 all over again.
The economy’s in the dumps, and life is bleak—people are spending less and saving more. As consumer spending falls, companies begin to lay their people off. It’s a destructive cycle. People are worried about the future and unemployment is rising.
In this sort of situation, who would you trust to bring you back to prosperity?
That’s the key question of today’s Econ Duel on fiscal policy.
Here, we ask, “When we’re in a recession, what should we do?”
Should the government cut taxes and let the private sector bring us back from the brink? Or should Washington step in and increase government spending? These are are the sorts of questions Tyler Cowen and Alex Tabarrok will tackle in this Econ Duel. And apart from the central debate of tax cuts vs. government spending, Cowen and Tabarrok will also dig into the other nuances of fiscal policy.
- How effective is stimulus spending?
- How do we know that the money goes to the right places at the right time?
- Government spending can lead to short term relief, but what does it mean for the long term?
- What role does timing play in fiscal policy?
- What happens when fiscal policy becomes confused with industrial policy? Or when we consistently run budget deficits, in good times and bad?
And as you’ll see in the debate, fiscal policy isn’t just about numbers, projects, or the decisions of those in power. By the end of this duel, you’ll see that fiscal policy is actually a lot about trust.
It’s about deciding who you trust when times are bad. If you have an optimistic view of the government, you may trust that spending is the answer. If you’re more of a pessimist, you may favor tax cuts and a private sector-led recovery.
Of course, we won’t answer these questions for you, but we’ll give you the background needed to decide for yourself!
So watch the duel, and at the end, remember to ask, “When times are bad, what should we do?”
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In case of cutting taxes, isn't there an implicit assumption that cutting taxes will lead to higher spending by people? If the economy is not in a good shape (for whatever reason) and people are saving money rather than spending, why would tax cute make them change their mind? Why the extra disposable income they have would not be saved, rather spent?