So all over the news is the impending "economic stimulus package" that Congress and the President will soon be enacting to stave off a recession. In case you're wondering, the theory behind this can be represented by the following formula:
Y= C + I + (G-t) + X
I'll spare the explanation for another time. Personally though, I am against this proposal, just as I was against Bush's tax rebates back in 2001. I don't see how transferring billions of dollars from a government running a huge deficit to a general population up to their eyes in debt so that they can spend more money is really an effective long term solution. But of course, this isn't about a long term solution. This is about not looking like Herbert Hoover in an election year. Shadow over substance.
How is it that we can somehow always find the will and the means for a short lived economic stimulus package, but when we need to make changes to correct social security, health care or fund our foreign aid obligations, there is simply not enough money or will to do it?
4 comments:
I don't have a clue what that algebraic equation means. None at all. It is also admitted that I don't really understand the economy. Since you are against it and I trust you on all things financial, it must be pretty bad.
Y = GDP
C = Consumption
I = Investment
G = Government Spending
t = Taxes
X = Foreign Trade Surplus
Changing depreciation schedules for businesses increases investment and granting tax rebates increases disposable income which inturn increases consumption and so the size of the economy increases, all other things held constant.
Bernanke and several Fed governors support it so maybe it's not as bad as I made out, but I still have my reservations about it.
Blah blah blah blah blah blah blah blah . . . yeah, what Lamp said.
:-)
P.S. - White stuff is falling from the heaven's in Charlotte. We're all very angry and locked in our houses.
Unless that $800 is permanent, it probably won't work.
Thus Friedman predicted that the $100 to $200 checks disbursed by the Treasury Department in the spring of 1975 would have a minimal impact on spending, because they did not alter peoples' permanent income. Most likely, people would save the money or pay down debt, which is the same thing. Very little of the rebate would cause consumers to buy things they wouldn't otherwise have bought in the near term.
Subsequent studies by MIT economists Franco Modigliani and Charles Steindel, and Alan Blinder of Princeton, showed that Friedman's prediction was correct. The 1975 rebate had very little impact on spending and much less than a permanent tax cut -- which would change peoples' concept of their permanent income -- of similar magnitude.
Per Bruce Bartlett - GHWB's deputy assistant secretary of the Treasury.
When permanant tax cuts produce decreasing gross receipts, then I'll believe we're on the wrong side of the Laffer curve.
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