Bush vs. Keynesian Economics

Paper Summary:

This paper explains that Keynesian economics would not be so optimistic regarding Bush's dividend tax cut proposal primarily because of their assumption that investment spending is driven more by expectations of future profits that are difficult to forecast. The author believes that the Bush tax plan essentially agrees with Keynes regarding the important role of consumer demand in stimulating the economy. The paper points out that Keynes and Bush radically differ on which category of consumers should receive the benefits of the tax cut: Bush is clearly placing more money in the hands of the wealthy.

From the Paper:

"Keynes disagreed with supply-side methods for promoting vast degrees of income inequality. Instead, shifting income from high savers to high spenders, Keynes argued, would increase investment since firms would have more reason to add increased production capacity. Keynesians advocate using "automatic stabilizers" to counteract alleged instability in the economy. Keynesians argue that progressive income taxes and welfare payments counter variations in aggregate demand. Progressive income taxes and Welfare transfer income from upper income households to lower income households. Since upper income households save more of their income and low-income households consume more of their income, these practices keep aggregate saving low and aggregate consumption high."

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