Upsidedown-enomics

In last night’s debate Bob Schieffer didn’t waste ten minutes before asking the candidates how they would cut federal spending.  This led McCain into an issue he apparently really cares about:  “a spending freeze” and doing away with “earmarks”.  He know how to do it!!

Yikes.  Do these people have any idea that the economy is going off a cliff?  There are essentially two ways of dealing with a economic slowdown.  One is monetary policy—the Fed fiddling with interest rates–the other is deficit spending to pump up aggregate demand.

But Ben Bernanke has shot every arrow in his quiver.  Whoever is elected president is going to have to come up with a stimulus plan.  Quick.  That means borrowing and spending, not a “freeze”.  it’s unbelievable people don’t laugh when they hear McCain say this stuff.

Instead of asking how they would cut spending Schieffer should have asked how they would increase it.  That’s an important question.  Not all deficit spending will do the job.  Via Matt Yglesias, here’s a handy chart showing what kind of spending does the most good.

So the best policies would be spending increases at the bottom (things Democrats consistently propose).  The worst would be tax cuts (thing Republicans consistently propose)

Advertisements

Leave a comment

Filed under economics

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s