Stimulus Package Nitwitery
There are three ways government can get the money for a stimulus package. It can tax, borrow or inflate the currency by printing money. If government taxes to hand out money, one person is stimulated at the expense of another who pays the tax, who is unstimulated and has less money to spend. If government borrows the money, it's the same story. This time the unstimulated person is the lender who has less money to spend. If government prints money, creditors, and then everyone else, are unstimulated.
~Economist Walter Williams on tax stimulus math:
(+$1 of Stimulus) + (-$1 of Unstimulus) = O Stimulus
24 Comments:
Seriously, what's your real agenda? Even the Commerce Department agrees that Q4 and 2007 sucked.
"WASHINGTON - The economy nearly stalled in the fourth quarter with a growth rate of just 0.6 percent, capping its worst year since 2002.
The Commerce Department's report on the gross domestic product, released Wednesday, showed an economy that had deteriorated considerably during the October-to-December quarter as worsening problems in the housing market and harder-to-get credit made individuals and businesses more cautious in their spending. Fears of a recession have grown.
For all of 2007, the economy grew by just 2.2 percent, the weakest performance in five years, when the country was struggling to recover from the 2001 recession. The housing collapse dealt the economy its biggest blow last year. Builders slashed spending on housing projects by 16.9 percent on an annualized basis, the most in 25 years.
"The economy has been subject to something of the perfect storm here. It has been hit by the housing slump the credit squeeze, the subprime slime and stock price declines on Wall Street," said economist Ken Mayland, president of ClearView Economics. "The economy is weathering some pretty stormy seas but it is weak."
The fourth-quarter's performance was much weaker — half the pace — than economists were expecting. They were forecasting growth to clock in a 1.2 percent pace.
The 0.6 percent annualized increase in gross domestic product (GDP) marked a big loss of momentum from the third quarter's brisk, 4.9 percent showing. The fourth-quarter pace was the slowest since the first quarter of last year.
The GDP figures come as worries mount that the country is on the verge of a recession or perhaps is already sliding into one.
To help bolster the economy, the Federal Reserve was poised Wednesday to again cut interest rates. An afternoon announcement was expected.
The fragile economic situation has spurred rare cooperation among Democrats, Republicans and the White House to quickly enact legislation to stimulate the economy.
GDP measures the value of all goods and services produced within the United States and is the best barometer of the country's economic health.
Consumers whose spending is critical to the economy's well-being tightened their belts.
In the fourth quarter, consumer spending slowed to a pace of 2 percent, down from a 2.8 percent growth rate in the prior quarter. For all of last year, consumers boosted spending by 2.9 percent, the smallest increase since 2003.
Businesses also watched their spending more closely during the final quarter of last year. Fearing a lessening appetite from their customers, they cut inventories of goods. That shaved 1.25 percentage points from fourth-quarter GDP, the most in a year.
Spending by businesses on equipment and software slowed to a pace of 3.8 percent in the fourth quarter. For the year, such spending was up just 1.4 percent, the worst showing since 2002.
Sales of U.S. goods and services abroad also slowed sharply in the fourth quarter. Exports grew at a 3.9 percent pace, compared with a sizzling 19.1 percent growth rate in the third quarter. That strong export growth was a key reason why the economy performed so well as a whole in the prior quarter. For all of 2007, exports grew by 7.9 percent, the slowest in two years.
Meanwhile, inflation picked up sharply during the final quarter. However, for all of 2007, it moderated slightly.
A gauge of inflation linked to the GDP report showed that "core" prices — excluding food and energy — grew at a rate of 2.7 percent in the fourth quarter. That was up from a 2 percent rate in the prior quarter and was the biggest quarterly increase since the spring of 2006.
For all of last year, core prices went up 2.1 percent, down from 2.2 percent in 2006.
High energy prices are a double-edged sword. They can put a damper on growth and also stoke inflation, which would be a dangerous combination for the economy.
The inflation figures could complicate the Fed's job of trying to energize overall economic growth while also keeping inflation under control.
Some analysts think the economy is on pace to recede from January through March. Under one rough rule, the economy would have to contract for six months in a row for the country is considered to be in a recession. The odds of a recession have risen sharply over the last year, and analysts increasingly believe the U.S. will be in one during the first half of this year.
The big worry is that consumers will clamp down on spending and businesses will put a lid on capital spending and hiring, throwing the economy into a tailspin.
The collapse of the housing market, soured mortgage investments and much harder-to-get credit are weighing on people and businesses alike. Foreclosures have hit record highs and banks have wracked up multibillion losses. The fallout has shaken Wall Street, catapulted the economy as Topic A among voters and galvanized political figures, including those vying to be the next president.
anoymous 9:08,
People are cutting their spending because they can’t use their house as an ATM machine and spend money they don’t have due to owing more than their house is worth.
The best thing people can do with any incentives is pay down debt. But is that what people plan to do? Not from what I hear from my co-workers. Many are having financial problems, but they still plan to borrow money to go with the expected tax incentives to buy wide-screen TVs to watch the Superbowl. Isn’t that how this whole mess started?
I don’t want to fund that lunacy. Do you?
anonymous 9:08am:
The fact that the economy slowed in the 4th quarter doesn't change the fact that the so-called stimulus package won't stimulate the economy.
Saying the so-called stimulus package won't work is not the same as denying the economy slowed.
So, what's your point?
I don't want to fund this lunacy either.
How does the government taking a dollar from me in taxes and then turning around and giving me my dollar back help anything?
bob wright said:
"How does the government taking a dollar from me in taxes and then turning around and giving me my dollar back help anything?"
In my case, it's about $10,000 they took from me and plan on giving $1200 back. There are winners and there are losers with this redistribution scheme. I know which one I am.
The Bush inspired economic stimulus package is nothing short of brilliant.
It is a superb way to sneak in a tax cut and satisfy the Laffer curve enthusiasts (sort of.)
To the indentured masses huddled around tiny 32" TVs it gives hope, where there once was none, that they too might buy a wide screen TV (with no payments till 2009) for the Super Bowl and thus secure the envy of their friends.
Bush is brilliant.
The name of this stimulus package should be "Bush's Package."
anonymous 11:04:
You seem to be saying [or what I am hearing is]:
1. Taxes are good [or else you would favor a tax cut].
2. People who make more money than you are bad.
3. People who make a lot of money don't deserve it.
4. Let's punish the bad people with high taxes and give their money to the good people [those who make less than the bad people].
I fail to understand this line of reasoning.
I think anonymous is implying this is a popular stimulus package. After all, it is difficult to upset people when you are handing them money.
If you don't think about it, it's a pretty cool deal. That's also the problem. People don't think about it.
walt g.
I agree with you on that.
- A chicken in every pot.
First, the economy didn't slow in the forth quarter, the rate of growth slowed. That is important. Second, that is the initial number, it will probably be adjusted.
Why did it slow? The housing market is a small part of the economy. I think it is because people are being scared by the anti-Bush main stream media trying to convince people the economy has sucked since Bush supposedly cheated his way into power. They have been claiming the economy was bad since he got elected, right through the boom.
Gas prices are high, food prices are high. That hurts people that don't make much money and sucks for them. Can't cut their taxes cause they don't pay any (income tax). Cutting taxes is good. So, why don't we cut gas taxes, or states cut sales taxes if they want to help the poor? This is not about helping the poor, but looking like the government caused the economy to rebound when it rebounds anyway, or claiming they did all they could if it tanks, or at least claim they care about the poor.
If I were king, I would be cutting taxes right now. ok, I am just ranting now.
The ultimate answer will be devalue the currency. Gold has been signaling this since 2002.
The Economic Consequences of the Peace by John Maynard Keynes - There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose.
I realize this might sound cruel, and I know people are hurting, but what’s so wrong about a recession? The economy is cyclical and will naturally have its ups and downs. Why not just let the market work?
From the BEA actual release (without spin):
"During 2007 (that is, measured from the fourth quarter of 2006 to the fourth quarter of 2007), real GDP increased 2.5 percent. Real GDP increased 2.6 percent during 2006."
I would prefer to see the need for "stimulus" discussed upon on the basis of year over year (4 quarter trailing) stats rather than on the basis of preliminary reports of one weak quarter.
I don't mind the people who are saying there will be a recession. I take offense with the people who believe that the whole financial prosperity of the US is one big sham and that our financial structure is about to collapse. What I hate the most is people who point to this recession and say that the last 5 years of economic growth has been a mirage. There maybe a recession, but that does not take away from the accomplishments of this economy in the last 5 years.
I called into a radio program one time just to argue that point. I threw some figures at them about high GDP growth and wage growth over the last several years. They countered with the fact that high inflation has eaten away into this growth. I told them that inflation over the last 5 years has been between 2-3% except for the last year when it was 4%. They laughed and asked me what planet I am living on and claimed that the real inflation rate is close to 10-11%. I hung up. I was obviously dealing with idiots.
Machiavelli999,
My electric bill, natural gas bill, and gasoline cost have all at least doubled in the last three years. My food costs, property tax, and car and house insurance have all increased at least 50% in the same amount of time. At the same time, my wages have remained relatively flat. I have documentation that proves these figures. They are not just off the top of my head.
I don't dispute your figures, but I do question why these types of expenses have not driven the inflation rate up substantially. These expenses are a major part of my net income. Are my financial experiences unique? I don’t think so. I believe my financial position is quite typical. Maybe we are not the idiots here
"I have documentation that proves these figures."
Sure you do. Just post your zipcode so that we can check the property tax increase.
rick ballard said:
"Sure you do. Just post your zipcode so that we can check the property tax increase."
I'll do better than that. I was talking about my specific case and not generalities. I think I am typical, but that may not be the case.
Here's my actual assessed value from my property tax bills: January 2005 $56,000; Jan 2008 $82,000. I come up with a + 46.4% change. Since the millage remained constant, my taxes have risen proportionally. How about yours? Look ‘em up. You might be surprised.
No quite so fast Walt - a change in assessment value in most jurisdictions does not equate to an equal change in the actual taxes billed amount. Prop 13 style restrictions apply in most jurisdictions in which the assessed value has jumped at the rate you're quoting.
It's not that I don't have complete faith in your honesty. It's just that Reagan's approach to the Soviets has a higher appeal to me than taking a sophist's word that the sun is shining rather than stepping outside to look.
Here's a helpful hint for you - Zillow has a dandy feature that allows anyone to track property taxes paid as well as increases in assessed value. All you have to do is find a zipcode that matches your declaration that your property taxes have gone up by 50% in the past three years.
Take your time.
rick ballard,
You're partially right. I refinanced (this is considered a change of ownership), the cap comes off, and the inflation protection is lost.
I'll stand by my original statement for MY case. I have not made a claim about others’ taxes. All assessments and taxable values are unique to each parcel, so Zillo would not really apply to "anyone's" taxes.
"You're partially right."
Nah, Walt. Doesn't work quite that way.
1.)You made a false assertion that was simple to rebut.
2.) You lied through your teeth in counter-rebuttal.
3.) There is no reason for anyone reading to presume that anything which you write is more than distantly connected to the truth.
I recommend two semesters of Remedial Sophistry 101A,B.
That and changing your sign in after you apologize to machiavelli999 for making him waste time reading your false assertion.
PS 42 states have laws on the books disallowing property tax increases of the type which you describe. You might want to think about asserting that your electric bill "has doubled" in three years too. It's very tough to find a PUC willing to allow that to happen.
PPS - If you really paid $10,000 in income, taxes you can propably afford a much nicer home. I understand that there are very good deals available at the moment.
I didn't say income taxes. I said taxes. Maybe you need to read closer. I like the house I'm in. Thanks.
Hey, Walt,
The good news is that a bottle of gin in Chicago costs $18.95 and the same product is $52.95 in Ontario, Canada.
It's not all bad if you can fix yourself a martini...stirred or shaken?
Greetings from the land of tax
I just wanted to add that I am actualy in the recession camp. I do feel we are about to go into a recession. But thats because the numbers back that up. Jobless claims spiked this week. Unemployment has been rising. GDP growth has stalled. All forward looking statistics point to weakness. So, I agree that the economy is weak right now.
However, the past 5 years the statistics point to low inflation, low unemployment and healthy GDP growth. You can't deny that fact. If there is a recession, it will be no different than the many recessions that come before it. I will bet everything I got that in 10 years you will look at this as just another bump in the road.
Also, I just wanted to add that besides the property tax expense that rick addressed, your other concerns are actually very real. High energy and high food costs are a serious problem. And eventhough, I am assuming, we are not senior citizens, high healthcare costs is another concern. Yet, in all cases, America's population anger is channeled in the wrong way.
It is not capitalism and the US financial model that is to blame for this increase in costs. Rather it is the LACK of capitalism and the US financial model in those 3 industries that are to blame. I have written about this many time, so I'll quickly summarize.
There are 3 type of markets. There is pure free markets, which are the best. There is the monopolistic market where a single company or a cartel control all production which is the worst. And then there is the government controlled markets which are pretty bad but not as bad as the monopolistic markets because the governments at least have the intention of helping out the consumer.
Now, in healthcare we have the worst market. We have a cartel of insurance companies, hospitals and doctors informally working together to keep costs high.
In food, we have the US government subsidising ethanol production which has driven up prices on other foods as farmers turn away from producing other produce and turn all their attention to corn.
In energy, we have a sad situation because we can't really do anything about it. At least in the short term. The majority of the world's oil production is controlled by a cartel of foreign despots who refuse to increase production or capacity. Sadly, we can't do anything about that.
The point is it is not free market capitalism that is running up your costs, it is the LACK of free market capitalism.
I agree the free market system is the best available choice. And, I expect normal business cycles.
Where the discussion changed was defining inflation rates from a specific view instead of a general view (presumably using the CPI). My detailed personal records that I’ve kept on an Excel spreadsheet since 2000 show my monthly expenditures have increased at a much higher annual rate than 4%. Maybe I’m atypical; maybe I’m not.
Regardless, I think we should just let the market work and not sweat the fluctuations. In the meantime, I will concentrate on the other financial side and increase my revenue by working another job and doing my own mechanic work. Patience is the key to prosperity.
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