Help Me Understand Leonhardt's Economics

One commenter on my earlier post snarkily referred me to Leonhardt's methodological explanation.  It says,

The stimulus adds $145 billion a year to the 2009-12 deficits. This number includes the additional tax revenue that the C.B.O. estimates will flow from the economic growth caused by the stimulus plan. This additional revenue amounts to about $40 billion a year.

Well, yes.  Standard Keynesian economics says that additional spending or tax cuts raise economic activity, leading to more tax revenue. But that economic analysis does not just apply to spending and taxes labeled as "stimulus." It applies to all the other fiscal policy measures as well.  It's really hard to defend making these adjustments for some fiscal decisions but not for others.

Leonhardt is usually reliable.  This looks like hack work.

Presented by

Arnold Kling

Arnold Kling earned his Ph.D in economics at MIT. He was an economist on the staff of the Federal Reserve Board. From 1986-1994 he worked at Freddie Mac. He started Homefair.com in 1994 and sold it in 1999. His fourth book, From Poverty to Prosperity, co-authored with Nick Schulz, is due out in April of 2009. He blogs regularly at Econlog.

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