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In the round, it increases income, because when governments order goods and services in the middle of a recession, producers fulfill those orders. It then is distributed as earnings primarily to wage and salary incomes, since profit earnings are low in the middle of a recession.

Tax cuts depend on consumption spending for their stimulus in the first round, as well as in later rounds ... government spending only requires consumption spending in the second round and later effects. The immediate income and employment impact is not subject to being undermined by dropping propensities to consume.

Ok, so consumption is fueled by expanding the money supply, to create capital to be employed in kickstarting consumption, but this involves a great deal of inflation.  So in the end existing wealth is diluted in order to allow for the economy to generate social income.

Don't you see that pissing some people off?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Oct 12th, 2008 at 06:42:47 PM EST
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