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the welfare state. This philosophy has found a useful ally in the balance-wheel theory; it has enabled governmental intervention to proceed at a faster pace than would otherwise have been possible. |
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How different matters might now be if the balance-wheel theory had been applied on the tax side instead of the expenditure side. Suppose each recession had seen a cut in taxes and suppose the political unpopularity of raising taxes in the succeeding expansion had led to resistance to newly proposed governmental expenditure programs and to curtailment of existing ones. We might now be in a position where federal expenditures would be absorbing a good deal less of a national income that would be larger because of the reduction in the depressing and inhibiting effects of taxes. |
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I hasten to add that this dream is not intended to indicate support for the balance-wheel theory. In practice, even if the effects would be in the direction expected under the balancewheel theory, they would be delayed in time and spread. To make them an effective offset to other forces making for fluctuations, we would have to be able to forecast those fluctuations a long time in advance. In fiscal policy as in monetary policy, all political considerations aside, we simply do not know enough to be able to use deliberate changes in taxation or expenditures as a sensitive stabilizing mechanism. In the process of trying to do so, we almost surely make matters worse. We make matters worse not by being consistently perversethat would be easily cured by simply doing the opposite of what seemed at first the thing to do. We make matters worse by introducing a largely random disturbance that is simply added to other disturbances. That is what we seem in fact to have done in the pastin addition, of course to the major mistakes that have been seriously perverse. What I have written elsewhere in respect of monetary policy is equally applicable to fiscal policy: ''What we need is not a skillful monetary driver of the economic vehicle continuously turning the steering wheel to adjust to the unexpected irregularities of the route, but some means of keeping the monetary passenger who is in the back seat as ballast from occasionally leaning over and |
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