20 Jan 2009

"Well do you have a better idea??"

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I just answered some questions for a Slovakian business weekly. (I’ll post it here if/when it’s online.) One of the questions was what I would recommend to the governments of the world, since (as would be clear in my earlier answers) I didn’t think “stimulus” spending programs were a good idea. My answer:

Governments should slash their spending and then cut taxes by the same amount. Ideally, the tax cuts should be implemented not through “rebates” but instead through reductions in the marginal rates applied to income. This would make the tax cut not merely a transfer from the government back to the taxpayer, but would also provide incentives for people to produce more. At the same time, central banks should stop inflating their currencies. Because of their monopoly positions, we can’t say what the “right” interest rate is, but I am pretty sure it is higher than 0%.

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