In December, I wrote about the concept of the balanced-budget multiplier and of raising taxes and government expenditure by the same amount, dollar for dollar…, such a policy would be one-for-one expansionary…
Because of the multiplier effect, it is possible to change aggregate demand (Y) keeping a balanced budget. The Government increases its expenditures (G), balancing it by an increase in taxes (T). Since only part of the money taken away from households would have actually been used in the economy, the change in consumption expenditure will be smaller than the change in taxes. Therefore the money which would have been saved by households is instead injected into the economy, itself becoming part of the multiplier process. In general, a change in the balanced budget will change aggregate demand by an amount equal to the change in spending.
People are actually serious about this?
That people spending peoples\’ money in Friedman\’s fourth manner (other peoples\’ money on other people) will increase general wealth than people spending money in Friedman\’s first manner (their own money on themselves).
Seriously? No, really, I mean seriously, macroeconomics has got so far up its own arse that people actually suggest that this is possible?