Department of “Huh?”

Megan McArdle writes:>All you have to do is believe . . . – Megan McArdle: The real question, I think, is how close the permanent income hypothesis is to being true.   The basic idea is that people are forward looking, and they try to smooth their consumption over time.  So if you give them a “temporary tax cut”, they save most of it, knowing that eventually they will have to give the money back. But of course, this should also be true of “temporary government spending”–if people think the money won’t be there next year, they’ll salt as much of the money away as possible.  This is a topic very underexplored in the various estimates of the stimulus multiplier…No it isn’t. This is a topic that economists have been exploring for fifty-five years. It is a topic that has been very thoroughly explored in all of the estimates of multipliers.

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