Saturday, January 26, 2008

Questions on the 'stimulus'

* If government can 'stimulate' the economy by passing some sort of legislative package, why do they wait until the economy is in trouble to do so? If Congress actually can have what they expect to be a positive impact, why don't they do this kind of stuff all the time - or make such things permanent?

My guess is that the answer to this question would prove the falsity of their proposed 'economic stimulus' plan.

* What impact does 1% actually have? Are you wondering what I'm referring to? Well, the stimulus package, of course. The proposed $150 billion package is only 1% of the $14 trillion economy. Even if every person who gets the so-called 'rebate' were to go out and spend it - and that's questionable at best - we're talking about 1%. That's all.

* What good does 'temporary' spending actually do? If people spend these 'rebates' as planned, we'll see a temporary blip - and that's it. After the money is spent, people will go back to what they were previously doing. What then?

* Why does Congress have to do anything in the first place? The economy has been much worse - and recovered - in the past. Why must Congress do something now? Wouldn't doing nothing be better than doing the wrong thing?

* How does someone who's not paid any taxes qualify for a 'rebate'? Isn't a rebate, by definition, a return of funds already paid?

* As Russ Roberts has opined, "whoever gets stimulated is likely to be offset by someone who gets unstimulated.

The money has to come from somewhere. If you raise taxes to fund the plan, the people who are taxed are poorer and they'll spend less. If you borrow money to fund the plan, the people who buy the government bonds have less money to spend and that offsets the stimulus. It's like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Funny thing—the water in the shallow end doesn't get any deeper.

And even the people who get the money often save more of it than they spend."


So if we're just changing WHO is spending the money, how does that equate to a stimulus? The spending isn't changing, only who is spending the money and what it's being spent upon. How does this help?

* Current estimates are that the earliest people will actually see this money is May with most getting it in July. By that time, the circumstances will be much different. I suppose some might call this time frame 'immediate' when it comes to the federal government...but that's still six months away. What happens if the economy turns around during that time? Will there be some sort of provision that cancels the 'stimulus package' if it's no longer needed by the time the checks are ready to go out?

* Why is government rushing to action when most economists say we're just heading for a recession - not that we're actually in one? The economy is always heading in a direction: either boom or bust. Why does Congress think this particular heading needs to be addressed? Wouldn't it be better to just let the economy go through what appear to be natural ups and downs?

* While I have a philosophical opposition to the idea, many politicians believe it's the role of government to influence/encourage/dictate personal behavior. Good personal financial practices are to spend within your means and save for longer term goals. Doesn't giving money to people "most likely to spend quickly the bulk of any new resources they receive" actually encourage poor fiscal practices? Isn't this actually an attempt to help the overall economy to the detriment of these particular individuals and families?

* Why doesn't Congress focus on long-term solutions rather than short-term and temporary measures? Making the tax cuts permanent, indexing capital gains taxes and the alternative minimum tax to inflation, reducing government spending ... these would be more effective - and longer term - solutions. Are they that much interested in buying votes that they ignore the disease while handing out placebos for the symptom?

* Is it likely that anyone in Congress will be asked - or answer - these questions?

Aside: For an interesting perspective on economic policy, I suggest this column by economist Robert Murphy, which says, in part:

"If the national discussion on monetary policy is bad, the debate over fiscal policy “stimulus” may be even worse. The politicians and pundits never explain how borrowing money from one group of Americans, in order to give tax rebates to a different group of Americans, is supposed to raise total spending. Things would be different if the politicians proposed spending cuts to offset the rebates to taxpayers. But naturally no one proposes such a sensible policy; they want to give us more money to spend, and to spend more money themselves, too.

The truly depressing feature of all the stimulus talk is that even someone as knowledgeable as Treasury Secretary Paulson believes a rebate is only good if the recipients “spend” it, rather than using it to pay down debts. Here we see the true insidiousness of the Keynesian mindset: In a time of recession, when we need to tighten our belts, the politicians encourage us to go buy new cars and plasma screen TVs. The idea seems to be that if we all just ignore the recession, it will get bored and go away."

and is a good discussion of the problems of Keynesian policy.

1 comment:

Hooda Thunkit said...

Maggie,

You aren't really expecting answers to those questions, were you?

No one in Washington will go "there..."

And, those who don't have a pot to P**s in will blow their "stimulus," probably on something made in China, while those with a pot will save it as usual.

Now, if the intent is to stimulate the Chinese economy, it will be successful; for us in the US though, it's just more Washington smoke and mirrors. . .

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