Thursday, November 06, 2008

What the Government Should Do

Economist Stephen Gordon has some interesting charts showing that in Canada, stimulus packages may do the opposite of what they're intended to: they can actually cause the economy to contract.

Gordon favors a much simpler approach: broadening the social safety net so that, for example, more workers who lose their jobs are eligible for unemployment insurance. This ensures that the money gets into the right hands, both in terms of where it's needed and where it will do the most good for the economy. We already have the automatic stabilizer that taxes fall with income.

Gordon supports monetary policy, but argues that tax cuts and stimulus packages might not be effective in the short or long run.

He also has a wonderful suggestion for MPs concerned about unemployment in their riding: resign your seat to enforce a by-election and government money will rain down "like so much confetti."

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