If Paul Krugman's fiscal stimulus or deficit spending had really worked as a cure to boost an economy, then the US economy would have been much bigger than 18 trillion dollars.
Let us take a simple example to understand fiscal stimulus. For illustration, let us take a family of four with Husband working to support his wife and two children. The husband is kind enough to give his wife 500$, and his two kids 250$ each per month to spend as they like. After a few months, both the wife and kids find the money they are getting per month is insufficient to spend on what they like.
The wife demands 600$ and the two kids 300$ each. The husband has two ways to fulfill the increased demand for money. One, if his income remains the same, he can reduce his saving to fulfill the demand.Two, he can find ways to increase his income to fulfill the demand. This example clearly illustrates that the husband has to work to stimulate spending by his wife and kids.
The government of any country has two ways to raise money. One by Taxation. Two by borrowing money.
Now, if you substitute Government for Husband in the above example to stimulate spending by wife and two kids you can clearly see that the Husband has to be taxed by the government to stimulate spending by wife and two kids.
It is a no-brainer that for implementing a fiscal stimulus someone has to work. Mounting debts of Governments is a clear indication that fiscal stimulus is a burden on people who pay taxes and may not stimulate the economy.
Let us take a simple example to understand fiscal stimulus. For illustration, let us take a family of four with Husband working to support his wife and two children. The husband is kind enough to give his wife 500$, and his two kids 250$ each per month to spend as they like. After a few months, both the wife and kids find the money they are getting per month is insufficient to spend on what they like.
The wife demands 600$ and the two kids 300$ each. The husband has two ways to fulfill the increased demand for money. One, if his income remains the same, he can reduce his saving to fulfill the demand.Two, he can find ways to increase his income to fulfill the demand. This example clearly illustrates that the husband has to work to stimulate spending by his wife and kids.
The government of any country has two ways to raise money. One by Taxation. Two by borrowing money.
Now, if you substitute Government for Husband in the above example to stimulate spending by wife and two kids you can clearly see that the Husband has to be taxed by the government to stimulate spending by wife and two kids.
It is a no-brainer that for implementing a fiscal stimulus someone has to work. Mounting debts of Governments is a clear indication that fiscal stimulus is a burden on people who pay taxes and may not stimulate the economy.
