At the Ludvig Von Mises Institute site, Robert P. Murphy tweaks conservatives who argue against the stimulus package and in favor of tax cuts that “put money back in the pockets of average Americans” so that they will hit the malls, spend that money, and boost the economy. Writes Murphy –
Although the instincts behind such arguments are sound, they often betray an underlying Keynesian mindset. By justifying tax cuts on the grounds that the taxpayers will go out and spend the money, these critics actually concede the entire case. After all, why take a chance on those fickle taxpayers, who might selfishly decide to pay down some debt or to stick the extra cash under the mattress? If buying stuff is the way to promote recovery, then nobody can top the DC politicians.
Starkly speaking, Murphy notes that the purpose of an economic system isn’t to provide jobs; it’s rather to provide goods that consumers desire. If people want to cut back on their purchases of certain items, the economic system should respond to those changed preferences. Consequently –
The hard part of economic affairs, then, is to produce things. After the product is available, consuming it is a piece of cake. To hear some crude versions of Keynesian thinking, you would get the impression that businesses are in trouble because Americans all of a sudden just decided that they didn’t like steak and they didn’t enjoy plasma screen TVs.
Of course that’s not what happened. Instead, what happened is that American consumers decided they weren’t prepared to spend as much on these nonessential items. To prove that our recession isn’t due to a lack of consumption desire per se, imagine that car dealerships announced they would sell each vehicle on the lot for $1. Or, those trying to sell their homes and finding “no buyers” could charge $10 for each property. Does anyone doubt that these firesales would unload all the excess inventory in a matter of hours?
Irrespective of a “stimulus” package based on government spending or tax cuts, American producers, argues Murphy, need to adapt to new realities. The government is simply trying to freeze the US economy in the unsustainable configuration of the boom years.
Tax cuts are good things, but if we are going to cut taxes, let’s do so for the right reasons, not to prove by default that we are all Keynesians now.
