It’s Not Even Keynesian

In a Facebook discussion of tax policy, I came up with an idea. It seems obvious, and on reflection also useful.

There are three basic categories of government taxing and spending:

One — tax to spend on government services;

Two — tax to redistribute wealth;

Three — tax to spend on stimulating economic activity.

The debate about one is always just a debate about which government services are necessary and desirable. The debate about two is very complex and can be approached from many angles, but it helps the analysis to state clearly when you are talking about redistribution.

The debate about three, when brought into clear focus, has a clear answer. Raising taxes (in current government jargon "paying") for "stimulus" is a certain mistake. It does not even have the theoretical support of the most rabid Keynesian theory.

Keynesian theory favors fiscal stimulus (that is, deficit spending) in times of high unemployment and recession. This can be achieved by lowering taxes while keeping expenditures stable or by raising expenditures while keeping taxes stable. The Keynesian hope was to put an end to the business cycle.

President Obama has lately made a stupid proposal. He wants to be seen as doing something about poor economic conditions. He recognizes that the idea of more deficit spending is very unpopular. So he proposes a false stimulus. It would be paid for by higher taxes on the rich. Grabbing more money and spending it (as opposed to deficit spending) may provide government services and may redistribute wealth, but it cannot provide a Keynesian stimulus. When it is considered as a "stimulus" proposal, the only theoretical argument in favor of it is a purely communist one — the planners will better allocate the money than would private enterprise. That's a bankrupt, and also an unpopular theory, and I don't think Obama or his advisors like it.

I think they like taking and spending (for purposes of redistribution and abuse of power — tossing billion-dollar favors around for one's personal benefit) and appearing (for political purposes) to be doing something. So they have dressed up a policy that would increase corrupt central planning while dressing it in the clothes of "economic stimulus."