Good article on the economic stimulus package

Vyse · 02-13-2008, 02:46 AM

RealClearPolitics - Articles - Stimulating Nonsense

Thoughts?

bluebayou · 02-13-2008, 01:41 PM

It's exactly right -- Macro Econ 101.

Arthur Laffer has an OpEd in today's WSJ saying the exact same thing.

Quote:

In this world of ours, those resources going to the rebate recipients don't come from the Tooth Fairy. They have to come from workers and producers. If the resources come from workers and producers who thereby receive less for their work than they otherwise would have received, won't they in turn spend less? Of course they'll spend less, and the people who now supply them with less will also spend less, and so on down the line.

As my former colleague and friend Milton Friedman liked to say, "There's no such thing as a free lunch," and this rebate is exactly what he meant. The net effect is that the reduction in demand from those who pay the real resources will be exactly the same size as the increase in demand from the rebate recipients. It's sad but true. Income effects always net to zero in a closed system.

But even though the income effects net to zero, the substitution effects accumulate, and they accumulate in a most unpleasant way. This should be obvious to even a person untrained in economics. Ask yourself why not a $40,000 rebate per person, indexed for inflation of course, if a $600 rebate is so good.

mini · 02-13-2008, 02:06 PM

"Ask yourself why not a $40,000 rebate per person, indexed for inflation of course, if a $600 rebate is so good."

Because the size of the rebate, per family, is indexed to the discounted price of a plasma tv made in Communist China.

bluebayou · 02-13-2008, 02:15 PM

^^ hahahahaha, good one mini.

dstark · 02-13-2008, 02:15 PM

I don't like the stimulus plan.

I do find it interesting that running up budget deficits by cutting taxes for the rich is ok, but running deficits by cutting taxes for the lower and middle class isn't ok.

Neither is ok.

barrons · 02-13-2008, 02:17 PM

Keeping them happy and busy building TV sets is the cheapest way to keep the population happy and peaceful which is good for the US.

Also while it may be zero sum in the long run, the idea is that in the short run it is a net gain as the repayment is deferred to better days when tax money is rolling in and everyone is doing so well they don't care if the tax is a bit more.

bluebayou · 02-13-2008, 02:26 PM

Quote:

the idea is that in the short run it is a net gain...

Yes, and that's the problem: it's only an "idea", with absolutely zero basis in actual practice, either economic or real. Most people will use the $$ to pay down debt, or, for those of us with kids in college, will use it to pay our increased efc (which is calculated net of income tax).

btw: it might have spurned new TV purchases if the the feds waited until next Feb when the network switchover to digital occurs and many TVs will go blank.

mini · 02-13-2008, 02:32 PM

I just had a funny conversation with a family member in south India. We were musing on the fact that the current Chief Minister of Tamil Nadu (think Governor) was elected on a platform of providing a color tv set for every family. He was able to deliver on it - his nephew owns the largest tv factory in India.

Sometimes the world seems very small.

barrons · 02-13-2008, 03:04 PM

Everyone says they will save it to sound smart. Most won't. What they say and do are often different things. I also doubt they will count that rebate check as income or anything else impacting fin aid for college. It won't show up anywhere on your return next year.

vicariousparent · 02-13-2008, 03:14 PM

Someone had suggested a great way to make sure that the rebates actually result in new consumer spending in a short amount of time. The strategy would be to issue not a check, but a "gift card" that can be used like a credit card but where the balance reverts to zero if it is not spent by a certain deadline.

This would prevent people from doing unpatriotic things like a) paying bills or b) saving the money.

mini · 02-13-2008, 03:31 PM

As long as the funds end up with our owners in China or Saudi Arabia, it is a success.

bluebayou · 02-13-2008, 03:52 PM

barrons:

have you seen any reports from an economist that says the stimulus package will do anything?

barrons · 02-13-2008, 03:57 PM

Yes, and the final package placed more $$$ into the lower income sectors so it fixed that criticism. Is it sliced bread-no, nothing is. It's a small tool like spraying a little gas into a bulky carb to start a car.

http://www.nytimes.com/2008/01/19/bu...=2&oref=slogin

UCBChemEGrad · 02-13-2008, 04:04 PM

I heard on NPR an economist say that the stimulus package is analogous to taking a bucket of water from the deep end of a swimming pool and dumping it into the shallow end.

Unfortunately, since the income requirements go off 2007 filings, I don't qualify for this "manna from heaven". My decision to fund a Roth 401(k) has "cost" me ~$600.

thumper1 · 02-13-2008, 04:05 PM

We figure with our AGI and the fact that our college "children" don't count as children...we'll be lucky to get $50 in this rebate. Please help me decide where I should spend this to rejuvenate the economy