Friday, November 19, 2010

The First Annual Christina Romer Award for Ideology over Economics

To a fitting target, for this statement:

That’s why tax cuts for the rich have a much smaller impact: the rich allocate a much smaller fraction of their income to buying goods and services.

Of course the rich devote a smaller fraction of their income. If you make $200k a year as opposed to a typical income of $50k, you have to spend roughly four times as much to be spending the same fraction of your income.

However, if a person making $200k spends $50k per year and a person making $50k spends $25k, the person making $50k is spending double the fraction of their income, but the person spending $200k is spending double the amount.

And the stimulative power of spending is all about the amount, which is why the richest five percent of the population account for nearly three times that percentage of the spending. Furthermore, since the rich have more to spend in the first place, they have not cut back nearly as much as the poor in terms of keeping the economy afloat. Meanwhile, there is also evidence that not only do the rich spend a much greater amount, but that they are just as prone to spend as the poor.

In short, Rob Tisinai's statement, while in keeping with the correctness of the Obama Party ideology that requires demonization of the rich (while ironically supporting and endorsing tax-dodging kajillionaires like John Kerry and Charles Rangel), does not make sense from an economic standpoint.

In other words, in classic Romer style.

No comments: