"Since 1970"

Krugman of August 27 (Nobody Could Have Predicted) links to Krugman of December 27, 2009 (Stimulus timing), below which the first comment begins well:

As Alesina and Ardagna showed in a recent study of 91 episodes in OECD countries since 1970 when governments attempted to stimulate the economy. cuts in business and income taxes are successful, while increases in government spending fail.

I've not read that study. (I put it on my list.) But I have to comment on the comment.

1. All "91 episodes" have occurred since 1970. That's not the beginning of time. It is, however, the beginning of our time of economic troubles as defined on this blog. As defined by Ross Perot in the chart from yesterday's post. And as defined by those who write of a golden age of post war capitalism." So the entire 91-episode study is an examination of an economy in trouble.

2. The comment points out that since 1970, "cuts in business and income taxes are successful, while increases in government spending fail."

Excessive reliance on credit gives rise to increased financial costs throughout the economy. Because of these increased costs, consumers and businesses -- and governments -- have trouble making ends meet. "Cuts in business and income taxes" relieve some of that stress in the private sector.

On the other hand, "increases in government spending" leave government with bigger deficits in an age when everyone has too much debt already. But then, so do business and income tax cuts.