In a way, I may be wasting my time doing any kind of rational analysis of Eric Cantor’s demand that any disaster aid in the wake of Irene be offset by spending cuts elsewhere. Cantor is, of course, being totally hypocritical; where were the demands for offsets to the cost of invading Iraq?Still, it may be worth talking about just how bad an idea this is in terms of basic economics — and in this case, regular economics, not fancy-schmancy macro. Think of the government budget as involving tradeoffs similar to those an individual household makes. On one side, there are all kinds of things the government could be doing, from dropping freedom bombs to providing children with dental care; think of each of these things as involving a certain marginal benefit per additional dollar spent, with the marginal benefit declining in the total amount spent on each concern. On the other side, raising revenue has a cost, both the direct cost of the money taken from taxpayers and the possible reduction in incentives from higher tax rates.
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