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Chapter 7: Trumponomics

income, whereas the government does not save the
money it taxes away from citizens. Therefore, dollars in
the hands of the government boosts the multiplier effect
because it spends one hundred percent of every dollar
whereas taxpayers only spend a portion of every dollar
they earn. Therefore, when the government raises taxes
to balance the budget, there is a multiple effect on
aggregate demand. Keynesians use the balanced budget
multiplier to justify higher taxes.

In a free market economy, Austrians believe that
the economy will recover from less than full
employment on its own as long as government policies
do not hamper the self-
adjusting mechanisms
of the system. They Austrians believe that
believe that savings savings and investing are
sources of growth.
and investing are
sources of growth and
that too much government borrowing and spending can
be counterproductive. Austrians tend to disfavor
discretionary fiscal policies but favor automatic
stabilizers and monetary policies. An automatic
stabilizer, like unemployment benefits, is a fiscal policy
that goes into effect automatically when needed and
monetary policies are policies of the Federal Reserve.
Keynesians justify deficit spending because of the
paradox of thrift. The paradox was first presented by
Bernard Mandeville in 1714 with his publication of The
Fable of the Bees. The paradox states that if everyone
tries to save more, aggregate demand will be
insufficient to support full employment. The paradox of
thrift promotes spending over thriftiness because
significant increases in saving can be a drag on demand.

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