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Government Spending Is No Free Lunch by R.J. Barro
Government Spending Is No Free Lunch: Now The Democrats Are Peddling Voodoo Economics
The writer begins by describing the 1980 economics. He has described the current form of government spending as demand sighted. He has described the current multiplier effect as 1.0. The l Gross National Product is equated to the multiplier effect felt on the aggregated demand. He has described the current consumption of public goods to be equal to aggregate demand. The article explained the Keynesian theory which assumes that the government is always better than the private market because they use idle resources. They use unemployed labor and unutilized capital at a cost that is equivalent to zero to generate social benefits as compared to the private market where they use at a cost. The writer uses this argument to see the multiplier effect to be 1.5.
The writer has traced government spending from World War II up to the year 1944 up to when it has reached 540 billion per year which amounted to 44% of the real Gross National Product. At the time the multiplier was 0.8. The multiplier was contributed by the decline in investment other government purchases personal consumer expenditures, exports. This reduced the multiplier at that time. This currently is the situation in the American economy. Americans also experienced the same in World War I Korean War and Vietnam War. The Americans are currently experiencing the worst financial crisis which can be compared to 1930s great inflation. The modern man in American today has not experienced this. President Obamas team efforts to put institutions on their feet through the stimulus package are likely to fall short if the Keynesian general theory of employment interest and money of 1936 comes to play. The article concludes with a note that the government should have incentives for people to have to invest more work and produce more. It considers that the government should use the tax to reduce the impact of the financial crisis by avoiding programs that discourage investment. The article further proposes that the elimination of federal corporal tax in order to help stimulate growth.
Opinion
The article has discussed a range of activities that will help to boost the economy from the current financial crisis to what it should be. I think the article has looked at the current financial crisis and realized that the stimulus package alone will do less to the economy and tax cards should be enforced to stimulate growth. I recommend this as the best way to prevent bankruptcy and pattern on the American people up to the time when the economy will start picking up.
Economic principles
The economic principles in this case that have been discussed center on the principles of employment, Gross National Product, public finance, and economic planning. I believe that bankruptcy as discussed in this article and unemployment. It talks about taxation which is in the principles of public finances. In managing taxation, it is the principle of planning of the government.
References
Barro R. J. (2009); Government spending is no free lunch; now the democrats are peddling voodoo economics.
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