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Tax Cut Stimulus Mish vs. Krugman: Libertarians Dead Wrong?

•, by Mike Mish Shedlock

Paul Krugman asks How Big a Bang for Trump's Buck? (Wonkish)

Here is Krugman's conclusion:

So now we have a stimulus from tax cuts and spending increases in an economy already down to 4 percent unemployment, where the Fed is already raising rates to head off potential inflation. That is, we're looking at normal monetary conditions, where we'd expect a smallish multiplier.

I'm having a hard time figuring out exactly how big a stimulus we're looking at, but it seems to be around 2 percent of GDP for fiscal 2019. With a multiplier of 0.5, that would add 1 percent to growth.

That said, I'd suggest that this is a bit high. For one thing, it's not clear how much impact corporate tax cuts, which are the biggest item, will really have on spending. ....

So we're probably looking at adding less than 1 percent, maybe much less than 1 percent, to growth. This isn't trivial, but it's not that big a deal.

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