Does More Government Help Or Hurt?

In this video, Stephanie Kelton investigates the economic philosophy that states that smaller government will improve the economy. This philosophy in practice equates to: cutting taxes on the job creators to create more jobs.

Kelton argues that this doesn't work. She presents Kansas as a case study - Kansas cut taxes on job creators to the point where "The bottom 20% are paying on average $166 more in income tax while the 1% are paying nearly $20,000 less." Rather than seeing an increase in job creation, Kansas' job creation is lagging behind the national average. Kelton quotes a policymaker: “We have had conversations with people and they think it is nice, but we haven’t seen any rush to hire new people or build new facilities.  There is still the tendency to wait for demand first. It is unusual to build up supply and expect demand to come later.” 

The problem with this economic approach, Kelton argues, is that "It presupposes the most important part of capitalism: demand." Businesses hire when there is demand, not when they have fewer taxes. 

Kelton then goes on to describe how government spending (and therefore larger government) can be a good thing and has been a good thing in the past. She describes that spending comes from three places - citizens, foreign institutions, and the government. The government can, and does, spend more money to keep the country from falling into further recessions through spending programs that allows citizens to continue to create demand, and therefore incentivizes businesses to keep and create jobs. The problem, however, is that our instinct is to stop the deficit from increasing. We need to fight that instinct to keep demand high. 

Kelton finishes her speech with suggestions for government spending that would boost the economy: federally funded jobs program, infrastructure investment, investment in education, and investment in research & technology.

Tags:
Big Government
Tax cuts