Stimulus, Without More Debt

THE $858 billion tax package signed into law this month provides some stimulus for our ailing economy. With the unemployment rate at 9.8 percent, more will certainly be needed, yet further deficit spending may not be a politically viable option.

Instead, we are likely to see a big fight over raising the national debt ceiling, and a push to reverse the stimulus we already have.

In that context, here’s some good news extracted from economic theory: We don’t need to go deeper into debt to stimulate the economy more.

For economists, of course, this isn’t really news. It has long been known that Keynesian economic stimulus does not require deficit spending. Under certain idealized assumptions, a concept known as the “balanced-budget multiplier theorem” states that national income is raised, dollar for dollar, with any increase in government expenditure on goods and services that is matched by a tax increase.

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An Invitation

For any who have enjoyed following Shiller Feeds, I want to invite you to follow my new personal blog at www.durancentral.com. Perhaps you will find my posts on random topics including economics, politics, religion and technology to be of interest. I also plan to use my new blog to highlight some of the other projects I am working on that may be of interest to you.

Best wishes for a very Merry Christmas and a Happy New Year!

David