Friday, January 25, 2008

The Big Stimulus

Sadly, I will be getting a check from the government as part of the bipartisan stimulus package (assuming the Senate passes the bill). Unfortunately, I don't make enough to be excluded, but I'll gladly take the money. I'm conflicted on this whole idea. I will never complain about the government letting us keep more of our own money. However, that's not exactly what is happening and that's certainly not the motivation for this package (at least from the Democrats).

The first problem is that this legislation gives two false impressions: that our economy is in the tank and that the government can fix it. We are not in a recession. A recession is two consecutive quarters of declining GDP. We haven't even had one quarter. However, there are real fears that 1st quarter '08 will show a shrinking economy and people in Congress like to get reelected. A stimulus package worth billions is a band-aid to a multi-trillion dollar economy. The market has to correct from time to time.

The second problem is that people making too little to pay taxes are receiving this "tax rebate." Those with adjusted gross incomes above $75k ($150k for a couple) get nothing. So the government is effectively taking money from those who pay the vast majority of income taxes and distributing it to the middle and lower class (the top 25% of earners pay 83% of all income taxes, the bottom 50% pays only 4%). Not only have the lower class done nothing to earn this money, but they are more likely to use it to pay down debt instead of stimulating the economy by spending it. Noble Laureate economist Milton Friedman (pictured) argued that consumers will increase spending in response to permanent tax cuts, but would save most of any temporary tax cut.

I'll never argue against a tax cut, but making the Bush tax cuts permanent would have been a much better idea.


Alex said...

looks like the senate is gonna screw it up anyway.

Alex said...

bah, got truncated. Here's the link:
Senate To Scuttle Timely Economic Stimulus Plan

Rudi said...

If you're having any moral dilemas with this money, I've got a house that has many projects that could help stimulate the local economy. :)

In fact, maybe that's the best way for the local government to stimulate the economy- give me a lot of money- I'll have no problem spending it.

Jon Vander Plas said...

Oh, it's going to pass. There's too much bipartisan support (a politician's primary objective is to get reelected). It might get tweaked, to include an even greater redistribution of wealth, but I think it will get done.

Jon Vander Plas said...
This comment has been removed by the author.