A commenter writes:
But the fact that politicians realized that they needed to cut spending, rather than to increase taxes, DOES tell us that they read the median voter as preferring spending cuts over tax hikes…which means that your argument boils down to completely agreeing with Tyler, no?
So, I was taking tax increases and spending cuts to be two sides of the same coin. For example at the same time we pushed for tax increases or as things more typically work to slow automatic sun-setting.
In either case you inflict pain on your resident and in either case their is an increasing marginal cost. Deeper cuts or higher tax hikes are both bad.
The question is whether it’s a liquidity effect or a wealth effect.
If it were a wealth effect there would be no reason to accumulate financial assets during the ARRA period. You would just cut spending and use the ARRA funding to provide a tax holiday.
Instead we cut spending and raised taxes.