Stimulus Updates
Stimulating Nonsense by John Stossell: "The money that will allegedly be "injected" into the economy is already in the economy. So how can it be a stimulus?"
That 'Stimulus' Nonsense by Arthur Laffer: "All of the stimulative effects of the rebate to the recipients will be 100% offset by the destimulative effects of the increase in liabilities of the workers and producers who have to pay for the transfer of resources to the rebate recipients. There is no stimulus from a rebate, period."
Economic Stimulus Math for Economy:
+$100 billion in economic stimulus + (-$100 billion in economic destimulus, higher taxes now or later) = $0 net effect on economy
Economic Stimulus Math for Politicians:
Political Stimulus Effect of Economic Stimulus Legislation > 0
14 Comments:
Dr. Perry,
It seems that part of the thinking behind the "stimulus" plan(s) is that amortization allows us to borrow money from a long time span in the future (10-30 years) and apply it to a very short time span (months or a year). Is this not what businesses, people and government do all the time with their regular day-to-day business activties?
When Intel borrows money for a project, is it zero sum? Of course not. It all depends on the long run return of our economy and the interest rates the money is borrowed at. Interest rates are very low right now - it seems wise to borrow money to overcome a temporary slowdown (even if it is mostly for political reasons :) ) because our economy will likely return a profit on that 'investment' that is larger than the interest cost.
Granted, there are far better ways the government could help the economy (eliminate corporate taxes, lessen regulation, etc.) but using amortization to fund todays economy is standard business practice and it does work.
Milton Friedman would be howling just about now. Politicians should be required to pick up "Capitalism and Freedom."
Time and time again we have seen that government attempts to "prime the pump" are temporary fixes at best and always feckless in the long run: All that we are doing now is transferring funds from one end of the economy to another while increasing the deficit and lessening the likelihood of significantly reducing taxes and government expenditure in the future. We get the government we deserve.
Vulcan Hammer -
Completely agree. Couldn't have said it better myself.
Vulcanhammer,
I also agree.
lowtax,
"Stimulus" versus a business loan is an apple & oranges comparison. The former puts the money into the least likely activity to produce future streams of revenue ie. consumption whereas the latter borrows money to invest in a business activity for the purpose of generating a return on investment (ie. developing a new product or service).
Peter Drucker once wrote that companies today are making decisions that will determine what their business will be in 10 to 20 years. Stimulus by contrast is a short-term stopgap approach with a long term consequences which fails to address the problems being experienced in the housing and financial sectors.
If you don't know what the problem is that you are trying to solve, how likely is it that you will succeed? The stimulus package is a politically crafted device with little economic benefit.
"The money that will allegedly be "injected" into the economy is already in the economy."
But in which economy? Seems to me that it's in the Chinese and Gulf States economies right now. Then we borrow $180B from them to give out to selected people. Then we pay interest on it for a bunch of years. Then "the rich" pay it off someday. Ha.
My favorite comment of all was when Pelosi said that she is "giving a gift" to Americans. Right.
Banks to ask U.S. govt to take bad loan risk: report
The banking industry is proposing to members of the U.S. Congress and the White House that some of the risk of troubled mortgages should be shifted to the federal government, according to a report in the Wall Street Journal on Thursday.
http://www.reuters.com/article/ousiv/idUSN1440273120080214
The name of the game by the banking industry, reap huge profits making loans that can not be repaid and when the game ends sift the loses to the taxpayers the ultimate bag-holder. Bailout is always the name of the game.
Jobless claims fell last week to 348k. So, if we are in a recession already is it a joblossless recession? That would be a first.
Jobless claims fell last week to 348k. So, if we are in a recession already is it a joblossless recession? That would be a first.
If Pelosi is giving a gift, shouldn't it come out of her pocket?
Bob said...
Why not tell everyone to take $600 or $1200 off their 2007 tax bill? This tells you something.
Also, it's hard to verify, but I believe this is just an advance on your refund next year. Thus a rebate. This was how it was done last time.
Machiavelli999 said...
"Jobless claims fell last week to 348k. So, if we are in a recession already is it a joblossless recession? That would be a first."
If we lose 100,000 jobs but 300,000 people stop seeking work what does that do to the unemployment rate?
anonymous (11:22 PM),
Your argument is so dumb. How can 300,000 people suddenly "stop seeking work". What are they doing then? Drawing money?
I really feel it useless to argue with people that don't see facts for facts. The US unemployment numbers have been kept for decades. When there was high unemployment, it showed high unemployment. I mean according to your logic how many disgruntled people must have "stoped looking for work" in the late 70s. Yet, somehow the numbers did show a high unemployment rate then. Its not as if the unemployment numbers ALWAYS paint a rosy picture.
Machiavelli999 you tell me where the workers went!
Look at the Change in Civilian Labor Force Level chart and tell me where 422,000 workers disappeared to in Jan. 2002?
Also consider that the unemployment rate rose to 5.0% in December up from 4.7% and 4.8% in the months preceeding. That means that we never gained the jobs typical for the Christmas season. No jobs created = no big losses in employment after Christmas that have been typical for the last 10 years.
From a newspaper interview, ""People appear to be dropping out of the labor force rather than looking for work," Mantell said in a statement. Those who stop looking for work are not counted as unemployed, reducing the jobless rate."
Will "Walk Aways" Increase Discretionary Spending?
...Take a family of four with a $2000 mortgage with another $7500 in taxes. That’s a pretty standard profile out here. Move out of the house and rent a 3 bedroom town home for $1400. That frees up $900/ month in cash flow..."
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