Yolanda asks:
Can someone please explain why this thing was called an “economic stimulus package?” Economic stimulus for whom, I ask you? And why all the emphasis on short-term boosts from the retail sector? How the hell does shopping for more useless crap lead to any kind of economic recovery (if that is indeed the intent)?
When capitalized, "Sie" is the formal way to address adults of either gender in polite German. I majored in the…
If one assumes that a person is making their money, including enough money to have no incentive to "work", by…
Ob sie wirklich Deutsch spricht. Normalweise, kommt die US Soldaten nicht ins Stadt und spricht nicht so oft mit denn…
As for being a Nazi, ich spreche fliessend deutsch und wohnte in Deutschland fuer drei Jahre mit der americanishe Luftwaffe…
And of course this "incentive" only applies to poor people: Rich people who already have enough to live off of…
So what if people making below $6000 don’t get a rebate? This is a tax rebate, not a handout. If you make $6000, you are not paying any federal income tax, just FICA. Also, if you are making below $6000, then you are doing something wrong (unless you are sick or old, in which case there are a myriad of government programs and private charities that can help you out). The current federal minimum wage is $5.85, so if you work 40 hours a week for 52 weeks, you should make $12,168. This would be even higher in states or cities with a minimum wage higher than the federal one.
Also, considering the fact that the House rebate caps at $75,000 for individuals and $150,000, this rebate is not a giveaway for the rich (And even if it included the rich, why would that be a problem? The rich pay far, far more in taxes than the “poor.”). Because of the caps, it doesn’t even include the upper-middle class, either.
Including the rich would be a problem because the stimulas effect works best when the people spend the money, rather than saving it, in ways they wouldn’t have spent otherwise. Poor people are more likely to spend money than rich people.
I read somewhere that the big mistake was calling this a “rebate,” rather than a “bonus.” A study found that people are more likely to spend money if it’s called a “bonus.”
I disagree with the original post, too. The (simplified) reason spending money helps is because that money helps to pay store owners and store owner employees, who in turn spend the money they got paid, and so on. Although there are limits to what this sort of stimulus can accomplish, I don’t think there’s much doubt that it has an anti-recession effect.
All thanks to Andrew for giving yet another example of why we’re doomed, DOOMED!
Bingo. How do all you libruls think we’ve managed to eliminate the homeless problem and reduce the child poverty rate to zero? It’s all those government programs and private charities!
This language seems to imply that Congress has drafted a bill to reward taxpayers with a rebate. I don’t share this understanding.
I have heard it argued that Congress has drafted this bill in an effort to stimulate economic activity. If that’s the goal, the appropriate question is how best can Congress achieve that goal. I don’t see how the relative merits of people who earn more or less than $6000/yr are relevant to this question.
I have also heard it argued that Congress has drafted this bill to attract campaign contributions and votes in the impending election. Given that poor people tend not to contribute or vote, excluding them makes perfect sense for this purpose.
This is reminiscent of the Child Tax Credit, putatively designed to help offset the cost of raising kids. In late May, 2003, House and Senate Republicans changed Bush’s tax cut bill to remove the child tax credit from most families who make under $26,625, effectively eliminating one in every six kids from receiving any benefits. Was this justified on the theory that it doesn’t cost anything for families earning less that $26,625 to raise kids? Republicans said the change was needed to make room for more dividend and capital gains tax cuts and – get this – to avoid increasing the deficit.
The day after the New York Times broke the story, the White House defended the bill. The ensuring firestorm eventually shamed the While House into changing the law. But even today parents earning less than $11,750 (in 2007) are ineligible for benefits, and those who are eligible aren’t eligible for refunds. In other words, a law putatively designed to help kids blatantly discriminates against the children of the poor.
I agree that spending money will help the economy (I don’t like it, but I agree). However, I also agree with the original post that extending unemployment benefits is much more likely to feed consumerism for a longer period of time and fend off a recession than a one-time mini payment to the middle class. People who don’t have guaranteed salary, whose jobs look precarious or people who are even just worried about the economy are more likely to save that money, add it to the mortgage payment or pay on credi card debts. Whereas, people who know that they will have a steady income (at least for 16 weeks) are more likely to spend some of that income on consumer goods.
I also don’t believe that tax breaks for businesses are going to save jobs or that the government should be bailing out lenders.
christina B, the tax breaks for business are specifically targeted towards investment in capital items. The idea is that if businesses are given a financial incentive to buy machinery, etc., that in turn gives a stimulus to those companies that make machinery and helps preserve/increase the jobs of those manufacturers’ employees. It is not a general rebate of corporate taxes.
Amp, I think the use of the word “rebate” is correct. The government is giving back to us money it took from us. That’s a rebate. When I get a bonus at work, it’s money over and above my usual salary because I did a great job or the company has made a lot more money than it expected to. But the company didn’t take the money from me to begin with; the money it got it earned. The relationship between me and the government is entirely different than the one between me and my employer
Is the financial incentive limited to businesses which buy machinery made by US workers? Or, as I suspect, are the jobs that we are preserving/increasing actually Chinese jobs?
Damn good question. I have no idea.
I doubt there’s any limit on that. In theory it shouldn’t matter. The business would do whatever is in the business’ self-interest; if it didn’t, other firms would and would drive the first firm out of business.
So which scenario helps the US economy more? 1) A firm receives funds in the form of tax breaks and then invests in buying machinery from China or moving manufacturing to China while retaining only a shell of a corporate entity in the US for distribution. 2) A firm does not receive funds in the form of tax breaks, does not buy Chinese machinery or move operations overseas, and instead is driven entirely out of business. Scenario 1 looks pretty bad if you assume the world is static. If you assume competition is dynamic and maintaining the status quo is not always an option, then you realize that Scenario 1 must be judged relative to its alternatives, such a Scenario 2.
And after all, the stimulus provided by Scenario 2 isn’t all bad. The Chinese manufacturing plant must be built, stimulating the production of steel at US steel plants. The steel is then shipped via US shippers to China, and the products are shipped via US shippers to the US. The employer is now manufacturing goods – computers, say – less expensively than before, and can sell them for less to US consumers. Those consumers can now use these computers to be more productive. Etc.
Nevertheless, I agree with Bjartmarr’s larger point: Not all stimulus policies are equal, and we should take care to target policies to where we get the most stimulus bang for the buck rather than the most political-backscratching bang for the buck. I like the oft-proposed policy of launching a nation-wide infrastructure repair program. After all, the nation has enjoyed years of no-new-taxes pledges eating away at maintenance budgets, resulting in collapsing levees and bridges. And just at the moment the entire building industry is in the crapper – bonus! Why not 1) do something we need to do anyway, 2) do it while we’re in recession so it’s cheap, 3) do it while it produces jobs in an industry that needs it, and 4) do it in a way that targets the economic benefits domestically?
My school board is building a new school. Who knew we were going into a recession? The bids are coming in WAY lower than expected, and we taxpayers are gonna reap a windfall. Let’s replicate this pattern everywhere! Revive the Citizens Conservation Corp!
As I understand it a successful stimulus package needs 3 things to be effective
1. It needs to be timely. (so tax cuts are out because they’re too slow. Spending increases such as this one are better.)
2. It needs to be properly targeted. (Plenty of Room for debate here.)
3. It needs to have little effect on your long term structural debt. So tax cuts are out again. As are entitlement spending increases. Both are likely politically hard to end as they’ll be termed a tax increase/welfare cut if not continued.
This is pure deficit spending. But as other’s have pointed our before the middle class currently has the highest tax rate. If the stimulus package misses them by too much you’re basically taking money from the middle class and sending it somewhere else. There’s some issue of fairness there.
Edit won’t work. The last line was supposed to point out the political realities also have to be considered.
I’m sorry, I can’t put the words “economic” and “stimulus” together without thinking of this.
This is actually open to a great deal of doubt. My understanding is that there’s only minimal evidence that this sort of spending is useful.
Our goal in “stimulus”, presumably, is to create wealth. Spending money on consumer goods, or even paying down consumer debt, doesn’t create wealth. This bill is fundamentally the government proposing to borrow money (or taking it in the form of taxes) from wealthy investors to hand to consumers, who, in the opinion of the bill’s sponsors, will turn around and spend it. Given US consumer spending habits, much of the spending will be on imported consumer goods.
Inflation (and the related depreciation of the dollar) is currently a major economic threat. Removing investment capital, and running up the deficit, will only worsen the problem. Far better to actually create wealth by, say, reducing the nation’s aggregate unproductive use of time. For instance, we’d be better off simplifying the tax code. This would reduce the billions in parasitic spending on tax preparation, tax advice, and tax enforcement. It could even be revenue neutral.
But I don’t see how the nation’s economy would be stimulated by shuffling money around. If this sort of stimulus worked, European countries that make a habit of such wealth transfers would experience roaring economic growth — but they don’t.
No it isn’t, and that’s a terribly vague and subjective standard. Increased consumer spending leads to the multiplier effect. That’s fact. You can say that that’s not “real” wealth. That’s strange, quasi-moral conjecture.
Most of stock trading consists of shuffling secondary market securities between short term speculators, rather than meaningful private investment. Does that “create” wealth? Sure it does – if you set your own goalposts at exactly the right place, which largely depends on your political inclinations. Personally, I apply the same standards to both this and the above: they are both empirically useful to the economy.
You mention unproductive use of time. If you mean increasing productivity, of course that’s the truest metric of economic strength in the big picture. I wonder why you didn’t just use that term to begin with.
Paying taxes is a laborious burden, yes, but it pales in comparison to drains on productivity such as commuting time. The average American spends about an hour a day in traffic. Do we spend an hour a day filing tax forms?
Sadly, the reality is that everyone in the US in a position of power desperately wants to avoid a major recession, mainly for geopolitical reasons. The best thing to do now, in my opinion, is to induce a light recession. The problem is that this recession has the potential to be the sharpest one we’ve had in a long time, and if that undermines long term faith in the US economy, it could trigger a run on the dollar and, ironically enough, ratchet up inflation to levels unseen.
The history of the 20th century says otherwise. There was a time when the government didn’t shuffle money around. The result were pernicious liquidity traps and Great Depressions. Worldwide, the era of active fiscal targetting produced far better growth for a far greater number of nations than the contemporary doctrine of austerity.
No it isn’t, and that’s a terribly vague and subjective standard. Increased consumer spending leads to the multiplier effect. That’s fact. You can say that that’s not “real” wealth. That’s strange, quasi-moral conjecture.
Most of stock trading consists of shuffling secondary market securities between short term speculators, rather than meaningful private investment. Does that “create” wealth? Sure it does – if you set your own goalposts at exactly the right place, which largely depends on your political inclinations. Personally, I apply the same standards to both this and the above: they are both empirically useful to the economy.
You mention unproductive use of time. If you mean increasing productivity, of course that’s the truest metric of economic strength in the big picture. I wonder why you didn’t just use that term to begin with.
Paying taxes is a laborious burden, yes, but it pales in comparison to drains on productivity such as commuting time. The average American spends about an hour a day in traffic. Do we spend an hour a day filing tax forms?
Sadly, the reality is that everyone in the US in a position of power desperately wants to avoid a major recession, mainly for geopolitical reasons. The best thing to do now, in my opinion, is to induce a light recession. The problem is that this recession has the potential to be the sharpest one we’ve had in a long time, and if that undermines long term faith in the US economy, it could trigger a run on the dollar and, ironically enough, ratchet up inflation to levels unseen.
The history of the 20th century says otherwise. There was a time when the government didn’t shuffle money around. The result were pernicious liquidity traps and Great Depressions. Worldwide, the era of active fiscal targetting produced far better growth for a far greater number of nations than the contemporary doctrine of austerity. Maybe something clicked and changed irrevocably, but I highly doubt it. I expect the shift was political in origin. But with so much at stake as it is now, I prefer policies with a historical track record.
Damn you, sylphhead, you beat me to the punch again!
As an econ undergrad, I learned about the “multiplier effect,” suggesting that taxing and spending an additional dollar had a net positive effect on the economy. I know understand this argument is now regarded as excessively simplistic. We need to consider what spending is “crowded out” when government taxes and spends. In other words, consider the trade-offs: is what we’re getting worth what we’re giving up?
– What are we getting? Depends on how the money is spent. If the US buys needed infrastructure, we get needed infrastructure. If the US distributes the money to citizens, we get whatever those citizens choose to spend the money on. But even in this scenario, money wouldn’t simply be “shuffled around” randomly. Rather, it would be “invested” using the targeting intellects of hundreds of millions of Americans. Conceptually, this is an efficient way to allocate resources – kinda like micro-credit for the US consumer.
– What are we giving up for this economic stimulus package? Because the Chinese seem to be floating US debt these days, it appears we’d be crowding out additional spending in China. It’s not at all clear that we’re removing any US “investment capital” in the short run; if business gets a piece of the stimulus package, the package will presumably increase investment capital. And yes, we’d add to the deficit, which will someday crowd out some US spending in the future. Ideally we’ll pay down those bills during boom times, as we did during the Clinton years. To be sure, US policy has a very spotty record here.
So the goal is not to “create wealth,” but to keep people’s current patterns of employing, earning and spending constant during a brief rough patch. It’s less expensive in every way to help newly-unemployed people keep making mortgage payments than to have houses repossessed and people evicted, only to get new jobs and new homes a year from now. (This is one reason why extending unemployment benefits is a good way to target economic stimulus dollars.)
Comparisons to long-term wealth-transfer programs are inapt. In such programs, both receivers and payers grow to expect the transaction and adjust their long-term behavior accordingly. Here, the stimulus package is of such small scale and short duration that neither party is expected to change long-term behavior on this account. The receiver will get a windfall, rejoice, and spend it. (The US has a negative savings rate, after all.) The payer doesn’t get the bill until much later – hopefully after the recession is over. She curses and pays it out of her proceeds from the now-booming economy. Logically she’d also adjust her behavior and begin saving in anticipation of the next stimulus package she’ll have to pay for, just as she would in anticipation of the need to pay FICA taxes. But the added cost of the stimulus packages are sufficient small, remote in time and unpredictable that it doesn’t modify her behavior during the recession. That’s the theory, anyway.
Love tax simplification, if done right. Amp’s sick of hearing me prattle on about it. But it’s merits are unrelated to the current proposal.
1. Give people a noticable but not too relevant sum of money
2. ????
3. Stable economy!
I had thought about mentioning projects to decrease time wasted commuting — and didn’t, because I couldn’t think of any major transit projects that could come online quickly enough to have short-term impact. I absolutely agree that in the long run, that’s a valuable use of money.
However, I suspect when you add up not just time spent by consumers, but time spent by tax lawyers, HR departments, etc etc etc, it’ll be more than you think. A quick google search turns up estimates for the cost of compliance between $75 billion and $200 billion, per year. Those are sums of the same order as the stimulus bill we’re talking about. (Though of course we can’t reduce compliance costs to anywhere near zero)
On the contrary. Payers (investors) are going to have less capital immediately — the feds need to sell bonds to pay for the stimulus, after all, and that reduces investment capital available for real innovation. It’s all well and good to say “china pays” — but aside from the longterm awkwardness of a large foreign-held debt, I suspect foreigners are going to be reluctant to hold dollar-denominated securities given how our currency has been depreciating.
Turn all Los Angeles freeways into toll roads for single-passenger vehicles during rush hours. In the short term this would drastically cut commute time, generate much-needed revenue, reduce pollution, and reduce the amout of money we spend on gasoline. Additionally, in the long-term this would encourage funding for mass transit (which would further reduce commute times), reduce our dependence on foreign oil, reduce the cost of housing (it’s cheaper if you don’t have to build parking garages), reduce the amount we spend on roads, and make LA a more accessible city.
You may have a point. If you regard China as a full player in the competitive global market for capital, then every dollar the Chinese spend buying US bonds is one dollar less they have to buy US corporate bonds or stocks or products. I don’t know how competitive China’s capital markets are, however. Can US corporations sell their bonds in China as easily as the US government can sell it’s bonds? If not, then the fact that the US government sells bonds in China may not actually crowd out any capital that was actually available to US firms.
That said, in the context of the global financial market, the US stimulus package is peanuts. So even if it does crowd out other investment, it doesn’t crowd out much.
Moreover, regardless of China’s conduct, any given firm is only going to be able to find capital if it can make a credible projection of turning a profit someday. If a stalling economy makes it harder for businesses to make that projection, then businesses will be less able to get financing. Conversely, in a booming economy investors are willing to take more risks: “In a strong wind, even turkeys can fly.” So an economic stimulus package, if it works, would likely make MORE capital available rather than less. But there is that whole “if it works” part of the equation.
Typically, “reluctant to hold” = “demand a higher interest rate.” It doesn’t mean we don’t get the money; it means we pay more for it. But as Paul Krugman notes, many banana republics have traveled this road before us and the final destination is not anyplace we want to go. So there’s not much harm in going a little down this road (deficit spending, debased currency). The biggest harm in going a little down this road is that we miss the opportunity to establish a principle that keeps us from going ever further down it.