Wednesday, February 25, 2009

Tax Cuts vs Infrastructure Spending

In my mind this is a no brainer. However, I keep hearing people try to dispute the fact that tax cuts don't work as good as infrastructure spending. When going into a recession you must increase spending to keep the level of GDP up and avoid the recession. It doesn't matter where this spending comes from, as long as the spending is done. When you give someone a tax cut they may spend it, they may not. They may just put it in their bank account, pay off some credit card debt, or make a mortgage payment. This doesn't stimulate the economy. Also, if they do spend it they will more than likely spend it in the service sector on clothes or food. This also doesn't help the economy, as the spending isn't directed at increaseing the REAL assets of the economy, which increases the productive capacity of the economy. Now for government spending. When the goverenment spends money on infrastructure the money is spent. There is no questions about it. The governement doesn't just sit money in a bank account. It goes and spends it on anything and everything. If it does happen to be on infrastructure such as energy, utilities, human (education), roads, and factories it increases the REAL assets of the economy and increases the productive capacity of the economy. This creates WAY more jobs than tax cuts and it sets the economy up for future growth.

This is a no brainer. Anyone who can't see the difference doesn't know what they are talking about and should be avoided in any political discussion.

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