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Noah Smith

The Sanders Case for More Spending and Faster Growth

It's the mirror image of Republican claims that tax cuts pay for themselves.
Hard to believe he would feel the same about tax cuts.

Hard to believe he would feel the same about tax cuts.

Photographer: Matthew Cavanaugh/getty images

The standard case for fiscal stimulus goes like this. In a recession, aggregate demand falls -- everyone is afraid to spend and instead just hoards cash. If the government spends it can prompt people to buy more things with the money they get from the government, which raises demand and gets the economy working again. Of course, this costs money, but the government can borrow the money and pay it back the next time the economy is running on all cylinders.

Stimulus, in other words, is part of a short-term strategy to fill in the gaps in the economy caused by the business cycle. That’s the basic idea promoted by the inventor of the concept, John Maynard Keynes. It is also the story embraced by most modern proponents of stimulus, such as Paul Krugman. However, in the recent debate surrounding the economic proposals of presidential candidate Bernie Sanders, a small number of economists have started suggesting a very different justification for stimulus. Their idea: Stimulus does something more fundamental to the economy by raising long-term productivity.