On Economic Stimulus
By Pejman Yousefzadeh Posted in Economy | Stimulus Packages — Comments (16) / Email this page » / Leave a comment »
Let's face it: We are going to have an economic stimulus package because this is an election year, because the economy appears to be in a downturn and because no politician in his or her right mind would want to go to the voting public and proudly announce that he or she did nothing in response to the apparent economic downturn.
Actually, let's amend that last part. If politicians were in their right minds, they would dismiss calls for a stimulus package. Russell Roberts explains why. (Via Free Exchange.)
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On Economic Stimulus 16 Comments (0 topical, 16 editorial, 0 hidden) Post a comment »
My long-retired Mother is really ticked off that her "safe" treasury bills are paying only 2% or so ... I'd tell her to get better rates on ten-year notes or thirty-year bonds, but they're beyond her likely horizon.
Meanwhile, the Feds take back roughly 85% of the Social Security benefits she would otherwise be due, because she saved most of the dimes she ever earned in her 50 years working.
Mom (and most Americans) aren't going to buy any more bonds ... the Chinese and Arab states probably will. After all, they're already baling out Citibank and Morgan Stanley.
Citibank has given more than $23 million to politicians of both parties these past years.
Morgan Stanley has done the same, with almost $16 million in contributions since 1990.
Foreigners buying US Bonds is a negative to the economy, and hurts our already disgusting Balance of Payments.
And even the people who get the money often save more of it than they spend.
Is the US with our near negative savings rate?
I don't disagree with Russell Roberts on the overall effects of the stimulus plan but his argument is weak. The better argument is that a credit crunch will not be solved by giving people more money to spend. You need to get the banks more comfortable with lending and at lower rates.
I enjoy unexpected gifts as much as the next person, but expecting the already broke Federal government to slip me a few hundred bucks of money that doesn't exist is not what I'd call "stimulating" ... or advisable.
Think about it in these terms: you are walking down the street, bemoaning how much you lost (on paper) in the market today, how many lattes to give up to make this month's mortgage, and maybe regretting the payments still due on that SUV you bought because the Feds let you write it off on your tax return. You see a person sleeping in the alley, under a blanket of newspapers. He wakes up and says "here, buddy ... you look worried" and hands you five brand new hundred dollar bills.
Do you take it? Because that's what Washington is talking about to "stimulate" the economy ... hand-outs for those who pay no taxes and tax-breaks for those that do. All from money our broken-down government doesn't have.
If our gutless politicians want to stimulate their populace, let them liquidate their own assets, take all the money in their re-election funds, "war-chests," and PACs, throw it into a pot, and hand it out! There's a guy who "owns" a heating grate next to the Treasury building ... surely he'd share his sleeping-bag with some well-meaning politician. They're in the same bag, already.
You would think the Fed is there to provide a back stop for the speculators.
Oh. Right.
The Fed (as in Federal Reserve) is not a backstop, but Congress IS! They bailed out Continental Bank in 1984, the Savings and Loans in 1989; and ever since, the bankers have been taking more risks (read__Hedge Funds!) and relying on taxpayers to bail them out.
Between 1986-1995, over 1,000 banks with total assets of over $500 billion failed. By 1999, the Crisis cost $153 billion, with taxpayers footing the bill for $124 billion, and the S&L industry paying the rest.
I'm reading something about Bush wanting to give out an $800 tax rebate? and the Dem's obviously want it to go to "low income" people. This is ridiculous low income people don't pay taxes so they don't deserve any of my money.
If we really wanted to fix the economy I think we should do the following:
Make the Bush tax cuts permanent or make them even more deeper, get rid of the Estate and Capital Gains Tax for good, make extremely deep cuts in federal spending(basically cut deep in every department but Defense obviously), Veto All pork spending, Cut the corporate tax rate, and don't offer any bailout money to anyone who has foreclosed on an ARM, don't bailout anyone who won't pay their credit card debt or car debt make them learn from their mistakes.
The chances of any of those things happening?....None, we'll just write out checks to people who bought $100,000 homes and knew they couldn't afford them and then hold Congressional Grandstanding Hearings on CEO Pay and Predatory Lending---There is no such thing as Predatory Lending, the lenders don't put a gun to anyone's head and say sign, that would be predatory.
You are right - the entire concept of "predatory lending", as understood by our pandering politicians, is ridiculous. I once heard this one NPR story (on the rare occasion that I actually can stand to listen to NPR) about this poor middle-class family somewhere in Minnesota struggling to make ends meet on their house payment. Turns out, dad is a blue-collar guy, making a decent living but not exorbitant; mom either didn't work outside the home or, if she did, only worked very little (can't remember); and they have 3 or 4 kids. Well, having so many kids means that they just need to get a bigger house, right? So they get this big house, way more than they can afford, and are now surprised when they can't make the mortgage payments. Of course, being NPR, the whole tenor of the story was how the evil mortgage company are throwing this poor, hardworking family out onto the street. The reporter grilled the mortgage company representative, asking questions along the lines of "why are you taking advantage of this poor, hardworking family - after all, they work hard and YOU KNEW they can't afford this house"? To my utter amazement, however, they actually asked the family, "why did you sign a mortgage on a house that you knew you couldn't afford?" I never expected any lefty outfit to actually make such a judgmental statement about anyone - perish the thought that people should make responsible decisions! And, of course, the mom's response was, "Because we needed it. Because the house is just perfect for us." And the reporter let it go at that.
So here's my two take-home (no pun intended) lessons on the liberal view of "predatory lending":
1. Whatever the customer needs, the bank should provide.
2. If the customer can't pay later on, it's the bank's fault for taking advantage of the customer in the first place.
Self-contradictory? You bet.
...and your right, no politician is going to stand in their way. Look at the way McCain was pilloried for standing against the first Bush stimulus package. Now he is rolling out his own stimulus plan. I guess he learned his lesson, sad to say. You can argue the merits of this plan or that plan if you want; the bottom line is that no one wants to be labeled as anti tax cut, especially a Republican.
But instead we are talking about spending and gimmicky "rebate" checks.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
…and label you as a pro-taxes liberal / heartless conservative. Its politics, not reality. An electorate skilled enough to see the gimmickry is what we are lacking. But the fact that people here can see that the government can’t give anything that it hasn’t first taken is a good sign. It can transfer wealth, but that destroys the incentive to work. If conservatives make clear that borrowing money for tax cuts is also a recipe for disaster, then we would be getting somewhere.
The real issue is total spending by government, not tax reform.
What's the point of changing the tax structure if spending stays the same? Once we accept that the federal government needs $2.7 trillion from us – and more each year – the only question left is from whom it will be collected.
Tax structure is about "who" pays the bill, spending is about the ammount of the bill.
A balanced budget where tax revenues closely equal government expenditures and not borrowing to pay for day-to-day expenses are the cornerstones of fiscal conservatism, not tax cuts.
Less spending means a smaller government that allows people to keep their money.
Tax cuts* while keeping or increasing the government waste only means that, sooner or later, taxpayers will have to pay.
*Unless one is on the wrong size of the Laffer Curve and a cut increase the government revenue.
What does this have to do with the stimulus package?
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
The author of «The Myth of the Rational Voter: Why Democracies Choose Bad Policies»
http://www.npr.org/templates/story/story.php?storyId=18176724
«Republican John McCain said Friday his party lost control of federal spending and expressed reservations about President Bush's economic stimulus plan as South Carolina voters got bad economic news on the eve of the GOP presidential primary.
Rival Mike Huckabee told voters Bush is on the right track with a plan to boost the economy. Former Tennessee Sen. Fred Thompson mostly concurred.
"I think if we're going to have a stimulus plan, that's probably the direction we need to go in," Thompson said in Spartanburg, S.C.
(...)
McCain blamed overspending in part for the nation's economic troubles.
"As a Republican, I stand before you embarrassed. Embarrassed that we let that spending get out of control, and it led to corruption. Now we have former members of Congress residing in prison," McCain told a town-hall style meeting at the Carolina Hospital East Campus in Florence. "If I'm president, it's going to stop."
"I'm not too astonished," by the bleak news, McCain added. "We let spending get totally out of control, and it continues today, and I'm sorry to tell you this."
McCain has voiced apprehension over proposals for temporary tax cuts and more spending as suggested by many Democrats and Republicans, saying they result in additional strains on resources.(...)»
http://news.yahoo.com/s/ap/20080118/ap_on_el_pr/republicans_economy;_ylt...
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.
What if the people who buy the bonds live outside of the US? Wouldn't that be a net gain to the US economy?