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Pastimes : Discussion Thread -- Ignore unavailable to you. Want to Upgrade?

To: c.hinton who wrote (2495)	11/6/2008 2:34:13 PM
From: TimF	Read Replies (1) \| Respond to of 3816

A balanced budget would more appropriately be called a fiscal reason not an economic one. Which isn't to say that the state of the budget has no effect on the economy, but the effect is not always large or always predictable, except in very extreme cases of budget imbalances when your either inflating the currency to meet the budget or your creating a fiscal crisis because the debt burden is unmanageable or both. as to taxes soaking up ex ex liquidity ....thats all part of keynesian theory. Sure it can do so, but it is just as likely to work in the wrong direction for the reasons I've already laid out. Also it doesn't work so well for housing bubbles in the context of a tax system that allows mortgage interest to be deducted from taxes, and that allows for zero capital gains tax on most home sales, without allowing zero capital gains tax on most other gains. In other words the tax system distorts incentives to push investment in to housing (which helped create the bubble), and with higher tax rates the distortion becomes even larger (so higher tax rates may have just made the problem worse) re "Eventually the bubble could have been popped by high taxes but only at the price of pulling down the whole economy." the whole economy is coming down any way. Pulling it down sooner, and probably in a more severe way wouldn't have been helpful.