Penguin, I'm just impressed. Either you are a briliant little budding Keynsian at 15. Or you are really 50+ and still pretty good. Or you are part of the Obama-list serve, in which case I'm disappointed. If you need to ask what the list-serve is, that's a good sign.
Agreed on the Keynesian idea causing inflation, though that isn't here in full force yet. If they can't manage the next step it will. As for the supply side not working either, Gingrich and Clinton pulled that one off rather well. Pretty decent economy with spending controlled. The big criticism of Reaganonmics, where supply side came into lingo, does not accurately reflect spending increases.
You have some pretty prescriptive ideas for how to handle the economy with targeted tax cuts and hikes. There is a massive risk of hubris in this. People far, far more intelligent and with far better and timely information have been down this road before. It has not worked for them, why do you think you could pull it off? Obama stimulus 1.0 was actually Bush stimulus 5.0. Each case was bigger, more targeted and better then the last. Between Bush and Obama we have $9 trillion of stimulus and here we are, real unemployment hovering around 15%: http://data.bls.gov/cgi-bin/print.pl/news.release/empsit.t15.htm (U6 is the accurate number, though economists who have been critical of how the BLS calculates numbers note that using methodology prior to Clinton's adjustment in 1994 place full unemployment at roughly 22%.)
Quick note. Fiscal policy would be the Fed buyback program, or keeping interest rates at Zero. A great example of Monetary Policy designed to spur targeted aggragate demand is the pathetic "Cash for Clunkers." Monetary policy puts money into the overall economy, fiscal does it primarily through appropriations.
I am, in fact, 15, and I read an economics textbook for fun at night (no joke). I have almost every theory in there memorized, but they never get old for some reason; each time I read them, I find something new. I guess that's why the debate still rages; if there were one single idea that solved all the problems, then there'd be nothing left to argue. On a side note, is it Key-knee-zian or Kay-knee-zian? I say it the first way, but the teacher says it the other. I certainly hope that I'm not on
anyone's list-serve; I heard of one guy who made this tiny (I'm talking like $5) contribution to the Republican party, and his mailbox has been overflowing with ads ever since!
My idea for the stimulus-hike system would be for the government to buy low (buy stock) and sell high (sell stock), but I don't know if they could then justify having insider information like they do now. If they could keep the insider information, though, then they could avoid the efficient market hypothesis. Unfortunately, that would then circumvent the fundamental principle that makes capitalism itself possible: The rule of law. If the government rose above the law (by giving itself the right to insider information while barring others from doing so in its own self-interest), then the risk of hubris could approach infinity as time approached five minutes later. Dang, you have a point there. However, the government could treat its insider trading like its monopoly on violence: necessary for survival. Then things might get better.
Perhaps I've tried to shoehorn New Trade Theory into internal economics. The big issue with it was that of hubris. However, if it worked for Japan's auto industry, then perhaps it could work here as well. Now my thought would be that instead of just adjusting taxes, the government would use direct transfer payments (loans, not grants) that hopeful start-ups would compete for in order to maintain a low barrier to entry in nascent fields. As collateral for these loans, the start-ups would give the government stock. However, the risk of hubris remains as the government continues to act on the market. However, the fundamental assumption of the existence and degree of market imperfection remains central to such ideas.
I don't know how much longer we can discuss the topic of government intervention in a forum that bans politics, though. Perhaps if we refrain from referencing the present the discussion can avoid breaking the rules.
-Penguin
