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The Correct Economic Case for Tax Cuts Has Nothing To Do With Aggregate Demand

Here’s a letter to the Washington Post:

Robert Samuelson rightly criticizes Donald Trump’s proposed policies, most of which are – insofar as we can make them out – concocted from economic idiocy and nativist superstitions (“’Make America Great Again’ is not a policy.  It’s an exercise in mass psychology,” July 18).

Yet Mr. Samuelson himself commits an error that, because it is so common, is especially regrettable.  Protesting against Trump’s call for tax cuts, Mr. Samuelson writes that “the economy doesn’t need more ‘stimulus’ now.”  But the proper economic case for tax cuts is not that they stimulate the economy with more spending.  Rather, the proper case is that tax cuts increase the returns to individuals – to workers, investors, and entrepreneurs – who undertake productive activities.  By allowing producers to keep more of the fruits of their efforts and risk-taking, even a fully employed economy becomes more productive and grows faster.

As Mr. Samuelson suggests, Donald Trump is a fast-flowing river of economic fallacies.  Mr. Samuelson should be careful not to inadvertently contribute to this flow.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercator Center
George Mason University
Fairfax, VA  22030