Thursday, December 22, 2011

Let's raid Social Security to get some cash to borrow more money

What happened when we first cut the payroll tax?  Nothing good, as Louis Woodhill explains in this Forbes article:
Why didn’t the (approximately) $27 billion per calendar quarter tax cut spur demand?  Well, let’s look at what actually happened in 1Q2011.
First, the Treasury borrowed $27 billion additional dollars.  Then the $27 billion was (incrementally) distributed to workers via the payroll tax cut.  What did those people do with the money?  They saved it.  Saved it how?  On the margin, they saved it by buying the bonds that had been issued so that they could have the payroll tax cut.  Who will ultimately have to pay off the bonds?  The same people who got the tax cut.  Isn’t Keynesianism clever?
Well, it looks like the House Republicans are going to cut their losses and get out of town, giving Obama a big victory since Americans are going to be able to buy some pizzas.  Can you feel the stimulus?

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