Economy stimulus: Good or not so good.

[epaul]

Bush is talking about a 145 billion tax break to stimulate the economy. And it isn’t just Bush. Both sides are falling over each other to provided a stimulus package (timed to provide a bump around election day).

Quite a few folks seem to think this is a good idea. A anti-recession bomb. Maybe.

To me it just seems a to be a short-term “fix”, similar to giving a heroin addict a booster shot. There are some fundamental issues that could be addressed, such as a huge deficit that is choking the dollar and the trust that borrowing depends on, a trade deficit (despite record grain sales) due to energy and other issues, delayed infrastructure investments that would pay off ten-fold in ten years if we had the discipline to make them, and some other things.

How does borrowing an additional 145 billion dollars on top of a mountain of borrowed dollars so an average middle class Joe can get a government check that will let them buy a new Chinese TV set help any of our economy's fundamental issues? (and my example is fair. The plan is to cut $500 check to an average Joe that is intended to spend quickly on a consumer item.)

Don’t get me wrong, I like new TVs, but after the thrill of that new TV has worn a little thin, the base economic troubles that prompted the “quick fix” will still be present. Or, due to the extra borrowing, just be worse. The deficit will be larger, infrastructure even older (with fewer bond dollars available to fix it), and energy issues will be worse.

Maybe I have missed a trick here or there, but it seems to me there are several good reasons why the economy is worrisome, and cutting a quick, borrowed, $500 rebate check to Joe Citizen doesn't do anything to address them, by my reckoning.

I do understand and agree that govt. borrowing can do a lot to trigger positive change and build a stronger country, but to borrow 145 billion dollars just to fund a consumer package that will fill one good-sized shopping cart and leave nothing behind once the thrill of new stuff has worn away does not strike me as an good investment.


It does look like a good time to buy some Walmart stock, however.


Paul

[John B]

Sen. Clinton has proposed a three-month ban on house foreclosures. Helpful, or not?

I'd like to pay down some of our debt. I cannot believe how much of our dollars are going to fund the war in Iraq. And I don't see that ending anytime soon.

[Supertramp78]

If someone gave me $500 I would use it to pay for getting Cameron's wisdom teeth out tomorrow.

But I would also ask, "Does this mean my tax refund is reduced by $500?" Like it was the last time Bush said he was going to send people money?

[knobtwister]

Yeah that last 'advanced refund' caused me to under-withhold and made me subject to a penalty according to TurboTax. I dropped by the IRS office to ask about and was told not to worry about the penalty.

Don

[epaul]

I would leave the housing market alone.

What are long-term housing implications if it is believed that the housing market will always be protected from a downturn or pricing correction. Speculation and overly optimistic loans are at the heart of the current problem. A government ban on foreclosures will just fuel the mindset that created the problem. And could create a housing market that is fueled by a belief in all gain and no pain, which will price housing to levels that can be sustained only by the greater fool (a fool backed by U.S. government borrowed dollars)

[Cornflake]

After trying to understand economics for most of my adult life, I still don't. Therefore I have no real idea whether this is a good idea. My vague, ignorant sense is that the problems caused by the housing market and subprime mortgages will work themselves out and should be allowed to.

[paulschlimm]

Smoke and mirrors. He needs to raise taxes and/or cut spending - period. The national debt is a much more serious threat to our stability than any terrorist group out there.

Tax cuts to stimulate the economy are a good idea IF we are on the side of the laffer curve where tax cuts would stimulate spending. We haven't been on that side of the laffer curve since the 80s, kids.

This is all political BS and economically unsound.

I haven't read about Clinton's plan to end foreclosures for three months, but that's political crack too. If you can't make your mortgage payments today, it's doubtful you'll be able to make them tomorrow. Staving off forteclosure isn't going to make the mortgage payment go away. Am I missing a trick here?

Paul

[Don Clark]

cornflake said:

After trying to understand economics for most of my adult life, I still don't. Therefore I have no real idea whether this is a good idea.

You're not alone there.....

[Tim Alexander (fmrly. Camalex)]

Insetad fo borrowing billions to rebuild Iraq, spend some of those billions on projects in the US and that would eb far more lasting stimulus package -- this is a band aid suited only for political purposes -- I don't beleive either party on this one. We have fundamental problems, structural fiscal and trade deficit, a looming social security imbalance, out of control consumer spending and insufficient consumer savings, the rich are getting much richer while the poor get poorer and we have the final bastion of personal financial security (real estate) threaten by overzealous loan orginators. nenver mind we have an idiot in chief and a vice Dick-head who go quiet and silent whent he real problems bubble up. A $500 tax break is just a small drop in the bucket. IMO

[Deleted]

Anyone disatisfied with a "rebate" can send it back. I'm pretty sure the government will have no problem taking it since they had no qualms about taking it from you the first time.

[John B]

I think refunds are a cheap political trick. But as long as they have a ceiling on who gets it (which at least one plan - Pres. or Congress - has), then it's OK by me.

[Doug]

Dumb idea, both the $500 and the foreclosure thing.

[Deleted]

Most of the stimulus plans seem like a form of cannibalism, to me. About 70% of our economy is based on consumer spending. At the same time, consumer debt is climbing beyond critical levels. So, we have created this huge dichotomy separating individual interests from economic performance. On an individual level, nearly every american would be better served b y actually SAVING more. But, an increase in consumer savings will eventually create/exascerbate a recession.

This economic model serves the interests of the very wealthy, who cannot spend themselves into debt. Meanwhile, most folks are up to their eyebrows in debt, digging their individual holes deeper each day. The "answer" is invariably: lower interest rates, or otherwise expand credit policies, so the peasants can borrow more, spend it on consumer goods, and feed the machine. It serves the government pretty well, because people wrapped in perpetual debt seldom have time to cause problems. They tend to be pretty reliable low-wage slaves.

I think we need a new program.

[jdd]

Also, besides hillary's three-month moratorium making no sense, another dodo bird idea is making the bush tax cuts permanent--which would have no effect. They're not even set to expire this year.

How about raising the minimum wage? Folks at that level spend everything, so it's certain to get cycled into increased consumption.

[Deleted]

How about raising the minimum wage? Folks at that level spend everything, so it's certain to get cycled into increased consumption.

Not sure how high you'd like minimum wage to be raised but that has been taken care of. It seems like that was the only thing congress accomplished in 2007. The minimum wage recipients' wages may get recycled but let's keep in mind that the employers who pay their wages will also be forced to increase the cost of goods and services. Higher prices don't necessarily translate into increased consumption.

[Supertramp78]

back when I was in business school we ran the numbers to show that increasing the minimum wage only did one of two things (and often both).

1. Like Chili said, it made the cost of services produced by companies that employed minimum wage people go up and
2. Reduced the number of people those companies could employ.

It isn't like these companies have a big old bucket of cash they can pull from to suddenly increase their labor rates by 20%. If you increase the cost of my labor by 20% I'm either going to increase the cost of what I sell or employ 17% fewer people to make up the difference. (do the math)

If you want a company to pay people more, one possible solution is to lower the cost of doing business. It isn't a surefire way to do it but it is the method the GOP favors for reasons that follow.

The only way the governent can do that is cut corporate taxes. Now you can cut corp taxes at the same time you increase the min wage if you want and that might provide the proper incentive to tell companies WHERE to spend their extra money, but there would be nothing to keep them from cutting employees and giving management a raise if they wanted to. So if all you do is cut corp taxes in the guise of stimulating the economy and all the company does with the lowered costs is pay the executives more well then it makes the executives happy. doesn't do squat for the economy and yields good political donations.

The only sure fire way to increase wages is to create more jobs. If the demand for employees goes up, wages go up too. Take a look at Odessa Texas which just a few years ago had almost double digit unemployment and the going rate for people was not too much above minimum wage. Now with oil at $100 a barrel, the unemployment rate in Odessa is the second lowest in the state (3%) and hourly rates have gone up by almost 50%. Nobody had to increase the minimum wage. It is just impossible to hire anyone at the rate when Walmart is paying $10 an hour.

[jdd]

Okay, scratch the min wage rise... I guess the inverse of creating more jobs is having fewer people. So maybe something like the border fence/enforcement) and/or IDs would increase demand for employees?

But I'm not sure if that'd be economic stimulus, so I'm back to square one on the stimulus question. (no other ideas)

Years ago Japan tried the one-off go-out-and-buy-something trick and it didn't work. Most every household got coupons for $400-600 redeemable at stores for hard goods (no food, clothing, gas, etc). We 'bought' a microwave and another trivial thing or two. I'm sure there are a zillion factors that could make it different there, but the look of it, as economic policy, looks wrong.

[jdd]

from BusinessWeek, saying where some priorities should be:

"But there's a surprising force that could keep the bottom from falling out of the economy: the $3.5 trillion health and education job machine, which created 640,000 new jobs in the last year alone. Propelled by aging baby boomers and rising student enrollments, hospitals and schools are still hiring while almost everyone else is cutting back.

Could adding more nurses, teachers, and hospital orderlies really hold off a recession? The answer is yes—with an asterisk. What people don't realize is that health and education combined make up the single largest source of jobs in the U.S., employing 28 million people, or about 20% of the total workforce. What's more, government funds support many of these jobs, either directly or indirectly, making them less subject to the business cycle.

The hidden danger now is that fading tax revenues may cause state and local governments to cut back on their funding for schools and medical care. That could weaken health and education spending just as the consumer slump hits—a double whammy that could send the economy into recession."

[Cosmic Wonder]

What if, instead of giving everyone a couple of hundred bucks to blow... (Don't those morons know how much a new Collings costs?)... instead, we were to cap the interest that lenders could charge on consumer debt to, I don't know, maybe 6% over the prime rate? Millions of consumers would get immediate monthly bonuses, with which they could either further pay down debt, or spend on things like having their kids teeth fixed. Sure the banks would scream bloody murder, but as things stand now, they are holding a lot of bad debt that will never be repaid and they want the us to bial them out. With my scheme, at least some of those bad loans stay afloat and maybe get well.

On edit: I just went back and read this thread, what Dharma said, and Paul S and Epaul too.


Mike

[timfarney]

I can't see how an extra $500 in Joe Consumer's pocket is going to do that much to stimulate the American economy. What's he going to buy with it that's American? We don't make anything.

Tim