Ygelsias says
Federal spending cuts shrink the federal budget deficit and constitute a negative shock to aggregate demand. States have to balance their budgets, so the alternative to a lower level of spending would be a higher level of taxes. In AD terms, it’s basically going to be a wash either way. Its the failure of congress to enact some kind of state/local bailout appropriation that’s forcing the anti-stimulative state level stuff.
I am actually looking into this right now. No firm conclusions as of yet, but 50 little Ricardos, that is no net effect of state spending cuts, looks to be winning out.
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Thursday ~ March 24th, 2011 at 1:14 pm
DJ Any Reason
Empirical beats theoretical, but why wouldn’t this back-of-the-envelope hold?
T = G
Y = (c0 – c1T + I + G)/(1-c1)
T’ = G’ = T + D = G + D
Y’ = (c0 – c1T’ + I + G’)/(1-c1)
= (c0 – c1(T+D) + I + (G + D))/(1-c1)
= (c0 – c1T – c1D + I + G + D)/(1-c1)
= (c0 – c1T + I +G)/(1-c1) + (-c1D + D)/(1-c1)
= Y + D
=> dY = dG = dT
Thursday ~ March 24th, 2011 at 6:36 pm
Wonks Anonymous
Hoover did more deficit spending than any president before him and was arguably more Keynesian than FDR’s first term. We should stop misrepresenting his administration. The primary way in which he was non-Keynesian was his record increase in taxation, not from cutting spending.
Friday ~ March 25th, 2011 at 9:04 am
DJ Any Reason
#whitepeopleproblems
Monday ~ March 28th, 2011 at 3:11 pm
Barry
I would point out that (a) Yglesias is not worth a d*mn on economics, and
(b) the idea is that the Federal government should be pumping money into the states.