Paul Krugman has a post on his blog relevant to some of the discussions about taxation that have come up here before. Against conservative notions that government spending might somehow make the economy less efficient — because government, according to conservatives, always spends money less productively than private individuals — Krugman writes:
When we’re asking whether it’s better to have the government stimulate the economy or to try to stimulate private spending, we’re asking among other things whether a marginal dollar spent on public goods is worth more or less than a marginal dollar spent on private consumption. And there’s nothing, even in Econ 101, that clearly favors private spending on private goods over public spending on public goods.
In other words, the attempt to claim the authority of economics for the idea that stimulus in the form of tax cuts is better, at a microeconomic level, than stimulus in the form of infrastructure spending is a case of bait and switch. Don’t fall for it.
In other words, the debate about whether to spend money on public goods has little to no relationship to the debate about whether money is better spent by government or private individuals when it comes to private goods. The only relevant controversy linking the public and private use of that dollar, I presume, is the controversy of values and priorities: how would we prefer to spend that dollar?
This reminds me that I still have not found a satisfactory account of why tax increases would necessarily harm the economy in a time of recession — as distinct from any other time. If in a time of recession we need government spending on public goods, partly because spending on private goods has significantly slumped, why would a dollar taxed from someone in the top 5% harm the economy were it spent on something like, you know, bridges, roads, or other infrastructure projects?
This is, I should add, a genuine question. I think the answer to this question is important because we’re going to be hearing a lot of economic arguments in 2009 that take the following form, “Since we’re in a recession, X follows.” I want to be very skeptical of such arguments — and to educate myself enough so that I understand the implicit reasoning — and, perhaps, logical flaws — behind such confident claims.
Otherwise, we must rely on arguments from authority — and the arguments of economists, at that! — which is a crippling position from which to form opinions.