I do not see the downside.
- Money that is "socked away" in savings accounts or investment portfolios reenters the economy through lending or through decreasing cost of capital for businesses.
- It is inherently better for Mankiw to write articles than it is for starving writers to do so. If anyone derived value from what the starving writer was writing, they would be getting paid for it and therefore not be starving (generalization -- there may be a few cases of highly valued writers being paid almost nothing and sharing their works for free to a wide audience, but I'm not aware of such). In the common case, that means that we are paying the starving writer for producing ~0 value, and decreasing the value that Mankiw produces, resulting in an overall decrease of wealth for society.
The fundamental misunderstanding you seem to be embracing is that the function of any individual in an economy is to pass the money they receive in wages forward to the next person in the chain. But this is not so: from an economic perspective, value is lost when less overall wealth is produced, so it's important not to encourage people in pursuits that hold no value to society as a greater whole. For example, society ought not pay artists that produce nothing other people want to look at for their services, nor should society pay programmers who produce software no one uses. On the other hand, society should avoid decreasing the output of those whose work is valued highly, like Mankiw's.
(If you derive some perverse value from having money wasted, then it would of course be fine for you to pay starving artists, but I'm arguing that society as a whole through the government should not.)
Banks have plenty of money to lend (see the TARP and the Fed throwing money at them). Companies have money to spend. Neither are doing anything because the economy isn't churning because people aren't spending their money. They either have no money to spend (the unemployed), or they are saving their money because they don't trust their company to not fire them/the government to not tax it away.
Today, what it seems we need is money going to people that would buy things from companies so the companies will hire people to make more of those things. And then more people can buy things from companies.
Once the economy is working again, then we can worry about rich people earning extra money and putting it in the banks for them to loan out.
If you mean this [1], I have read the Krugman article on the stimulus' size. I'm sure Mr. Krugman's analyses are correct in the short term, although I suspect there's some question of how much you can increase GDP through government spending before other effects start working against you (like uncertainty about future taxes, decreasing ability of the country to borrow more money, etc.).
Regardless, like an ice bath is to a fever, this may treat one symptom, or even temporarily make things better, but it may also make things worse in the long run. There's nothing even remotely like a consensus that increased government spending and extra money for the poor is the correct solution to the current economic climate.
[1] http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithme...
Presently, there is zero indication of any decreasing ability of the US government to borrow money.
The reason there isn't any consensus on increased stimulus spending at present is mainly because of Republican lies, and the economists like Mankiw (a Bush advisor) who spin in support of them.
As you may gather from this post, I'm somewhat pissed off at the situation, and probably vented at you because of my anger. Sorry for the overreaction.
I agree, to spend is to tax. But to spend even more is to tax even more. I'm sure additional stimulus dollars would be money far better spent than the money we have spent burning Iraq and Afghanistan to the ground, but the fact remains that additional stimulus spending must be additionally paid back some day. The chief question in my mind is whether the return on those additional dollars would be worth the price.
I think you may be overestimating the extent to which outright Republican lies, numerous though they are, are affecting consensus on this issue among economists. For example, there are many non-Keynesians out there who disagree with the assertion that high government spending can counteract a recession.
I must confess, though, I don't have my ear to the ground as well as I would like on this topic. Kind of makes you wish that there was a Cliff's notes for recent updates in the outlook of experts and academics on various important topics. My understanding is that Krugman's outlook typically differs somewhat from most economists' beliefs (as surely it would with Mankiw's arguments in the linked article), but perhaps that is not the case re: additional stimulus spending?
Also, see Krugman's current op-ed about the true extent of the stimulus: http://www.nytimes.com/2010/10/11/opinion/11krugman.html
Hmm, you seem to be claiming a either conclusive proof that Keynesianism is correct or disproof of Monetarism, new classical macroeconomics, and the Austrian school, etc. Either of these would be news to me. Am I reading you wrong?
http://krugman.blogs.nytimes.com/2010/09/20/structural-imped...
People aren't buying things (presumably because they can't afford them), so businesses aren't hiring. Look at the graph. Businesses aren't concerned about "Interest Rates & Finance", which means they can get the money they need. They just don't have anyone to sell things to.
I don't think my accusation that you weren't paying attention has any merit since this is the article I was thinking of at the time, and it's only three weeks old. I apologize. I think there were other things said along these lines, though.
Comparing the untaxed value + 8% over 30 years to the taxed value is a straw man. I could push that horizon out another 30 years, and the 'marginal rate' would get worse. I could shorten it and it would get better. It's a meaningless number. Also, no company pays a 35% tax on the returns to their stock, they pay 35% on taxable income. There's a huge difference. Unless he's planning on dying soon, (which he's not, because of compound interest assumptions) there's no way he can tell what the estate tax is going to be. It's a crapshoot.
Roughly, the marginal change of the rollback in taxes is going to be a couple percent, though he talks about the new percentages, not the old. The net marginal change is going to be tens of dollars. If that's enough to keep him from writing articles like this, bring it on.
Indeed. His tenure in the Bush administration was mediocre. Then again, he could be a great public speaker.