Of course, here's the irony.
If President Eisenhower had simply listened to
Vice-President Nixon's Keynesian advice and cut taxes, the result would
not only have been strong economic growth, Eisenhower would have left office
basking in the glow of a budget surplus of about $5 billion.
Which would have been more than enough to have paid for Nixon's tax cut.
This is because the additional economic growth would
have generated billions of dollars of additional tax revenues.
By the way, Nixon, not Kennedy, probably would've won that election,
changing history entirely, in so many ways.
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So what's the really key point of this historical example?
Simply that one must know thy deficit in order to fix it.
And this key point is not just useful to policy makers debating tax hikes or
tax cuts.
It can also be quite important for business executives and investors.
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For example,
suppose a business executive team observes that the government is about to engage
in large fiscal stimulus in the presence of a large cyclical budget deficit.
Should that team anticipate higher growth or simply high inflation?
And how might is forecast effective production plans?
Take a minute now to jot down your answer before moving on,
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Well, in this case, a large cyclical deficit clearly implies a slow to
recessionary economy in possible need of a Keynesian stimulus.