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Knight Templar's avatar

Y = C + I + G + NX demand

Y = C + S supply

Stimulating G, again and again, induces lazy and unproductive people who do not "shift" the aggregate supply curve 'down and to the right'.

Therefore, "demand, on average, creates supply" works best in the short-term, but not as a sustainable real growth model.

Supply, on average, creates demand works much better in the longer term. Longer term versus shorter term is what defines new classicals.

Those that hang on to Keynes theory that government demand could increase demand for labor until the wage equals the marginal disutility of labor are implicitly believing a Phillip's curve exists. It doesn't, except in the short-term.

Milei's economic policies were not well thought out.

Musk is trying to trim the fat from the federal budget, so that recipients of government subsidies deserve the payments, rather than fraud or laziness.

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Aditya Ramsundar's avatar

The idea isn’t really to intentionally start a recession. Large scale government cuts will have transition costs since the government has grown to be a large % of the GDP. They really are highlighting those transition costs when talking about cleansing. Unemployed gov’t workers (if successfully fired) will have a transition to the private sector. Imo it would be better if Trump/Vance/Musk simply communicated the transition like a Fed Chairman. After talking to someone in the OMB recently, it seems like they really are drafting the cuts legislatively. The problem atm is public choice theory though (as always, special interest capture prevents large scale cuts), but the energy for wide scale cuts is much higher within DC now then it was in 2017, so the chances something happens legislatively is higher as well

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