Now is not the time to save…
In our macro class last week we talked about the conflicts between a strategy of prudent saving during hard times, and the need for consumers to increase aggregate demand by spending.
This leads us to the fiscal (sometimes called the Keynesian) multiplier – where government stimulus funds (added spending or tax cuts) cascade through the economy and increase GDP by some factor that is hopefully greater than 1. The more we spend newly arriving money, the more cascades and increases the multiplier. The more we take that new money and use it to pay off debt, buy stocks, or save it, the lower the resulting multiplier.
I teach principles of economics courses and a course in the economics of healthcare at Southern Oregon University.
Finally, an economic principle that suits my lifestyle!
Seriously, though, from an economic standpoint, Obama’s tax cut, which should reflect a permanent (though modest) change to income seems to conform to the requirements of Friedman for using tax cuts to increase spending.
On the other side of the aisle, Steve Keen over at DebtWatch has quite a bit to say on the subject of multipliers in the Roving Cavaliers of Credit.
First off let me say I have longtime reader, but this is my first comment. I thought I should probably say thanks for posting this piece (and all your others), and I’ll be back!