“ Cutting state spending reduces in-state aggregate demand, virtually dollar-for-dollar. Some forms of state spending, particularly in the area of health care, bring matching federal dollars into the state’s economy. So cuts to certain public services result in even bigger reductions in aggregate demand because they prevent federal dollars from coming into Oregon’s economy.

Tax increases targeted at high-income households and corporations also reduce demand, but not as much as cutting state services. High-income people typically don’t spend all their money, and some of the money that they do spend is likely to be spent outside Oregon. In addition, the deductibility of state income taxes from federal taxable income means that a fraction of state tax liabilities are, in effect, shifted to the federal government. Therefore, a tax increase on high-income Oregonians does not reduce aggregate demand in Oregon dollar for dollar. And since a significant fraction of Oregon’s corporate taxes are paid by out-of-state, multi-state corporations, the corporate tax measure also does not reduce demand dollar for dollar in Oregon.”

This is the tired old Keynesian argument that the government spending multiplier is larger than the tax multiplier. It comes from the Keynesian Cross, an unfortunate construct that has led to lots of bad policy.

Mankiw, a New Keynesian, discussed the debate in a NYTimes article last January. Here are his key paragraphs:

“MIGHT TAX CUTS BE MORE POTENT? Textbook Keynesian theory says that tax cuts are less potent than spending increases for stimulating an economy. When the government spends a dollar, the dollar is spent. When the government gives a household a dollar back in taxes, the dollar might be saved, which does not add to aggregate demand.

The evidence, however, is hard to square with the theory. A recent study by Christina D. Romer and David H. Romer, then economists at the University of California, Berkeley, finds that a dollar of tax cuts raises the G.D.P. by about $3. According to the Romers, the multiplier for tax cuts is more than twice what Professor Ramey finds for spending increases.

Why this is so remains a puzzle. One can easily conjecture about what the textbook theory leaves out, but it will take more research to sort things out. And whether these results based on historical data apply to our current extraordinary circumstances is open to debate.”

I’d put my money on the evidence. Keynesian theory is appealing. It offers a free lunch. Unfortunately, free lunches are hard to find in the real world.

Retirees work like an export industry for a community. They live in the community, but their income is from a retirement fund completely independent of the community. That’s good, but all is not sweetness. The article hints at some of the problems:

“Migrating boomers don’t necessarily care about school quality or the local job market, but they want pretty scenery, affordable housing, cultural amenities and things to do.”

That quote gets it slightly wrong.

Retiring baby boomers will be moving to a community because they like it just the way it is. They do care about school quality and the local job market, but in a perverse way. They don’t want to see an improving economy. That would be growth. That would be change.

To the extent that improvements in school quality or an improving job market creates change, boomers will actively resist the improvement. They have the time and resources to make that resistance effective. Boomers will put in place laws, regulations, and procedures that will limit any change. Good change or bad change, it doesn’t matter. Boomers will fight all change.

Eventually, as the article points out, the baby boomers will no longer have the vigor to enjoy the rural life style. Then they will leave. They will leave a legacy that will retard economic growth for a generation or more.