Why spend trillions on bailouts and bribes, instead of spending trillions on tax cuts?

Here is a message I sent to the Larry Kudlow show on November 13, 2008, in which I forecast (with gruesome accuracy) the futility of running up huge deficits in order to provide bailouts rather than tax relief.

If we are willing to borrow a trillion dollars from the Chinese or others to solve our economic problems, why not use the money to fund massive cuts in tax rates for businesses and individuals at all levels, rather than throwing it at Wall Street and bankrupt companies?  There is no reason to assume that providing liquidity to the financial community or sustaining Detroit on life-support will induce lenders to lend or will otherwise reverse the negative psychology that keeps the customer and home-buyer home and keeps businesses from trying to grow – that is just “pushing on a string.”  There is every reason to assume that tax-rate cuts can alter behavior, arrest our deterioration into a barter economy, increase GDP, and actually reduce the amount we need to borrow from abroad.  This has been demonstrated beyond any doubt by Alan Reynolds, Glen Hubbard, Kurt Hauser, Milton Friedman, and (inadvertently) Franklin Roosevelt.

[Posted on mecmoss.com 10 Feb 2012]

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