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Taxes, spending key to economic success

July 7, 2012
The Daily Mining Gazette

To the editor:

It is an article of faith among Republicans that low taxes and austerity are the keys to economic success. Alas, the facts say otherwise. High taxes and greater spending are the key to economic success.

In 1932, when the economy was depressed, it was more spending, not less, that brought us out of The Great Depression.

Economists have studied the relationship between spending and economic growth between 1929 and 1962. They find that in every year that spending increased there was a strong economic growth and that in every year of reduced spending there was a sharp decline in economic growth.

The fact that reduced spending leads to less economic growth (and so fewer jobs) and that increased spending leads to more economic growth (and so more jobs) remains true to this day. Consider the following.

In 2000, taxes were 20.6 percent of Gross Domestic Product and unemployment was 4 percent.

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In 2003, Bush lowered taxes to 16.2 percent of GDP, and unemployment rose to 6.0 percent.

Then in 2007, taxes rose to 18.5 percent of GDP and unemployment fell to 4.8 percent.

In 2010, taxes fell to 15.1 percent of GDP and unemployment rose to 9 percent.

That low taxes lead to slow economic growth and high taxes to strong economic growth is also true for Europe. Economists from the International Monetary Fund gave studies 173 of fiscal austerity for the years from 1971 through 2001. They found that years of austerity were always followed by economic contraction and higher unemployment.

Thus today the evidence is overwhelming that stimulus measures cause the economy to grow while austerity measures cause it to contract. Admittedly, deficit financing cannot go on forever, but the time to reduce the deficit is when prosperity has returned and inflation threatens the economy.

But that's for the future. The immediate problem is how to climb out of the deep recession in which we find ourselves.

And to do that, the logic of the facts given in the paragraphs above declare that Obama's stimulus measure and higher taxes are far more likely to succeed than Romney's austerity measures and lower taxes.

Clayton Roberts




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