Monday, January 07, 2008

Demand Curves Still Slope Down

Paul Krugman argues (January 7) that increasing taxes on the wealthy will not hinder the slowing US economy. It's a strange argument considering the wealthy invest much more and this investment is a key input into how economies grow. If you tax people more, especially on investment, they will be less likely to invest. Krugman cites the high growth rates in the Clinton era but it isn't, as he implies, due to high taxes. The plethora of possibilities was due to the dotcom boom. Krugman is mistaking coincidence for logic.

Of course if you do want to play this game, Herbert Hoover sharply raised taxes in 1932 and it didn't fix the problem.

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