The Fiscal Stimulus Pander
January 25th, 2008 by Peter SudermanThe New York Times has an article up today reporting on how various stripes of economist view the just-announced fiscal stimulus package. What’s notable is that, though the critiques of the package differ wildly, nearly everyone agrees that what the package, as proposed by the House, is a political effort — not a substantive policy fix. So on one hand, we get free-market advocates of the FreedomWorks stripe making statements like this:
The most fervent proponents of free markets criticized the plan as a damaging intrusion by government that incurs public debt for dubious subsidies.
“The economy is working these things out,” said David R. Henderson, a libertarian economist at the Hoover Institution at Stanford. “We’ve got the housing crisis and the subprime, and all these things take a while to settle. The government just doesn’t have the discipline to kind of let things work out.”
But others see through the plan too, even if they disagree on what it should (or should not) have done. You’ve got a Harvard economist calling it “inadequate,” and an economist from the left-leaning Economic Policy Institute calling “a political choice, and a bad one.”
That’s not to say that every single provision is awful. As Heritage’s Rea Hederman points out, there are some strong, helpful tax breaks for business:
The best part of the agreement is tax cuts for businesses. “Bonus depreciation,” which allows companies to rapidly deduct qualified investment from their tax liability, makes new investment opportunities more profitable and attractive. This provision would increase business investment, which would create jobs and strengthen the economy.
But on the whole, the plan seems far designed to generate easy political goodwill than to actually create the conditions for long-term economic growth.
The Washington Post has most of the details of the plan here.
January 25th, 2008 at 5:17 pm
I love how someone from the Hoover Institution sez that: “The economy is working these things out”. Great…let’s do what Hoover did to fix what would become the Depression…nothing.
Let’s face it folks…like it or not, we’re getting a stimulus package. Writing blog post after blog post against it will do nothing but frustrate you all.
January 26th, 2008 at 1:09 pm
I agree with Mister Guy. The Heritage Foundation says that there are tax cuts for businesses in the package. I’m kind of thinking that it might not do a whole lot of good in the long-term, but I don’t think it’s going to hurt us either. I think it was Larry Kudlow who wrote a piece in the National Review saying that Bush had to do something.
Also, Bloggers to form a new Freedom Revolution: http://neoconservativepundit.blogspot.com/2008/01/freedom-revolution.html
January 26th, 2008 at 6:24 pm
Building a Freedom Revolution: http://neoconservativepundit.blogspot.com/2008/01/building-freedom-revolution.html
American Solutions’ “Solutions Lab” is a great way for us freedom loving Americans to build a Freedom Revolution. FreedomWorks has 850,000+ members that can collaborate on Freedom Solutions, via the American Solutions “Solutions Lab”.
Go to http://www.americansolutions.com and start collaborating on Freedom Solutions.
January 26th, 2008 at 6:37 pm
Economic Malady – Stimulus Insufficient
The underlying problem with the economy is an extreme maldistribution of income between the working class and the capital owners. When a CEO can make 300 million dollars while an average worker’s wages haven’t even kept pace with inflation what results is a dysfunctional market economy starved for consumption spending. The average American has had to fuel his/her spending with debt obtained by borrowing on the equity within their home - that phantom equity has now evaporated.
In order to correct this out of balance condition there needs to be laws in place (similar to the anti-Trust legislation) that caps the annual income of all capital owners and their surrogates (CEOs, CFOs, etc.) at a specific federal percentage above that of the highest paid worker within their respective firm. Also, we need to eliminate labor arbitrage by canceling all Temporary Worker Visa programs (L-1, H1-B, etc.), and establish tax penalties for firms that expand their workforce above some threshold through outsourcing, or replacement hiring in foreign locations.
Essentially, FDR was accurate when he characterized the Great Depression as an out-of-balance Economic malady. Rural income prior to the Great Depression was significantly lower than urban income, now (overvalued home equity) as then there was unlimited amounts of overvalued phantom equity flowing into the stock market, the income differential between labor and capital while nowhere near the current astronomical level was still much higher than sustainable. There in lies the root cause of the out-of-balance condition that precipitated the Great Depression. Any system including the market economy that gets to far out balance does not function properly. Certain constraints need to exist to keep the market economy from slipping into a dysfunctional state. Balance is the essence of stability nothing short of this will guarantee permanence.
John Maynard Keynes –
?? If fiscal policy is used as a deliberate instrument for the more equal distribution of incomes its effects in increasing the propensity to consume is, of course, all the greater.
??Aggregate consumption depends mainly on the amount of aggregate income.
??Consumption – to repeat the obvious is the sole end and object of all economic activity.
?? We cannot, as a community, provide for future consumption by financial expediants [stocks, bonds, 2nd mortgages on home loans, etc] but only by current output.
??Capital is not a self-subsistent entity existing apart from consumption.
??Consumption is directly tied to the level of employment.
My Proposed Program
• 2 year 800 billion emergency Infrastructure Investment Jobs Creation Program (IIJCP) aimed at building new interstate highways, mass transit systems, schools, bridges, public hospitals, libraries, and assorted public buildings.
• Eliminate labor arbitrage by canceling all Temporary Worker Visa programs (L-1, H1-B, etc.), and establish tax penalties for firms that expand their workforce above some threshold through outsourcing, or replacement hiring in foreign locations.
• Taxation of corporate profits in the amount of 95% for firms that exceed a threshold level of jobs outsourced to a foreign country.
• Taxation at the rate of 80% on individual yearly income received from any corporation, not-for-profit organization, or any form of legal entity where the total income exceeds the U.S. average yearly median individual income by 200%.
• Fair trade agreements that ensure nations will offer decent wages, humane working conditions, and sound environmental policies.
• A nationalized health care system for all U.S. citizens.
• An effective federally funded tuition assistance program for U.S. citizens targeted at professions in demand.
• Repeal all legislation that inhibits the right’s of individuals to organize under labor unions regardless of position or any other currently disqualifying classification.
My Observations:
• An economy can only function when a large proportion of the populace is engaged in the economy thus able to purchase what is produced.
• If price is inelastic and labor remuneration static demand will fall due to reductions by industries in their capital base (the most important being labor).
• Firms forced to compete (those that are not oligopolies) in an economic environment where demand is declining will still compete on price but efficiency gains and operating cost reductions by nature have marginal declining utility whereby a point is reached when the firm’s factors of production (land, labor, or capital) must be slashed. These cuts in factors of production will have a multiplicative effect throughout an economy resulting in an ever building ‘wave’ of economic decline.
• It is important to keep in mind that an economy cannot continue to grow when long-term consumption continues to decline. This in turn ties directly to reductions in the factors of production to accommodate continual long-term reductions in consumption.
• When geographical barriers, constraints to the free flow of labor resources, underemployed resource utilization, similar knowledge distribution across all nation state’s, and nation state governmental inconsistency exists no global free market can exist and thereby at the nation state level no significant corresponding opportunity cost for engaging in one form of economic endeavor over another.
January 26th, 2008 at 11:08 pm
I say we push House and Senate conservative Republicans to try to add an Amendment to the Economic Stimulus bill that would make the Bush Tax Cuts permenant. The Democrats will get what they want, which won’t help the economy, but at least Republicans will get they want too.
January 27th, 2008 at 7:49 pm
While I do not agree with everything that SoftwareEng has to say, I’d love to see this website rebutt him. That would be fun to watch indeed.
The Bush tax cuts for the rich are doomed. They are going to be going away next year when a Democratic President works with a Dmeocratic Congress to eliminate them. Get ready for it…