The title says it all: to boost growth, should we stimulate demand (lets call this the Krugman option) or cut regulations and taxes (lets call this the “evil republican option”)? The Krugman option would mean that firms and investors have poor outlook on the future and hence that they fear poor sales, hence they constrain their investment. The logical solution is stimulate demand. The “Evil Republican Option” which is attacked from all sides in the media as a communications gimmick to attack the Obama administration for being allegedly anti-business. According to this option, the logical solution is to attack the problem of uncertainty caused by changes in regulatory and tax burdens.
Putting aside ideological differences (even though I confess being, deep down, a conservative), lets look at the polls regarding uncertainty. Every month, the National Federation of Independent Business (in the US) produces a survey of “business optimism” within small and medium businesses. At first, the Krugman case might seem interesting since there is in fact a decline in “optimism” (see page 4) since the beggining of 2011. But this could also be proving the case of the “evil republican” side.
Hence, lets look at the idea of poor sales. On page 18, we see that in October 2011, poor sales was the single largest problem that firm faced (with 26% reporting). However, lets not jump six feets high yet! Relative to the same time last year, that figure has in fact dropped 4 %. Hardly a strong case. The “evil republican option” gains ground in fact when we amalgamate tax and regulatory burden, 37% of firms reported that government-imposed burdens (taxes and regulations) were their single largest problem, a figure which has not moved compared to the same time last year! The “evil republican” side could in fact add the inflation as part of the government-imposed burden, which would bring the total to 43%.
I am not saying that I am a partisan of the all the republican rhetoric, but maybe its time to tone down comments like those made by Rachel Maddow, which are more of the partisan kind since there does seem to be evidence favoring the “evil republican”
One thought on “Stimulating demand or cutting the regulatory burden?”
Si la consommation est revenu à son niveau d’avant crise il reste quoi comme argument pour la théorie de Krugman?