Originally Posted by Villages Kahuna

Thanks, Yoda. If many of us exchange ideas like yours, we'll all be better prepared to understand what's happening.

Your proposal for permanent tax cuts caused me to head off to do a little research. I found an article by Diana Furchtgott-Roth on a website called The Great Debate that was entitled "The $300 billion tax cut: Let’s do it right." http://blogs.reuters.com/great-debat...s-do-it-right/

The Obama plan has $300 billion in tax cuts built-in, but they are not permanent as both you and Ms. Furchtgott-Roth observed. I found what she said in the article interesting because it relates to some important economic theory which originally won Milton Freidman a Nobel Prize. In her article Furchtgott-Roth explained that while the Obama proposal does have $300 billion in tax cuts included, they are temporary, applying only to the first two years. Further, those cuts would not be sent out in lump-sum checks, but would be largely reduced payroll deductions, which would be expected to encourage increased consumer spending.

But as you suggested, Furchtgott-Roth also points out that the problem is that tax cuts that are temporary and will have limited effects on spending behavior. Friedman won a Nobel Prize for his permanent income hypothesis, which showed that spending decisions are made not by the amount of money in consumers’ pockets, but by their expectations of future income. (I guess that's why the index of Consumer Confidence prepared by the University of Michigan is so widely reported each time it is issued.)

At least we understand a little more about the positions being taken by the "dueling economists", with a little politics mixed in I'm sure. I can only think that Obama wants to make the tax cuts temporary, knowing that if and when the economy recovers, that the increased tax revenues resulting from the "sunsetting" of his proposed cuts along with dramatic reductions in government spending, will be necessary to begin to whittle away at deficit spending and the humongous national debt. But that's just my opinion...or my hope anyway.

Maybe others might have enlightening alternatives and citations, as well. The more we share, the more we'll all understand about this situation. One thing is for sure...there is no totally "right" or totally "wrong" solution to this financial crisis. Hopefully, as the result of discussions like this, we'll all be better prepared to understand how the mixture of alternatives might work.

By the way, I agree that you hit Econ 101 right on the head...Consumption produces a demand for goods. Demand produces production. Production produces jobs. If we all remember that objective as we assess the plans being put forth, we'll be a lot better off in understanding them. I guess I might add one other element to your economic formula. That would be that any plan should drive the consumption-demand-jobs engine as quickly as possible.