Almost every year there is a phony debate in Congress about the need for a so-called economic "stimulus". All the oratory and rhetoric is demagoguery on both sides. Whether it's "jump-starting" or "goosing" the economy or "stimulating" demand or "putting more money in people's pockets" -- it's always the same diarrhea of the mouth, trying to convince gullible citizens that somehow the politicians will create wealth by playing gimmicks with taxing and spending policies, and the point is to try to convince you that you will get more money in your pocket to spend.
The economic "stimulus" word game is unscientific, because the experts do not agree on what it means or when it has ever been successful or what its purpose is or how to accomplish it. Everyone who is adamant about their particular economic stimulus plan is a charlatan only seeking to enrich his or her group at the expense of all others.
Let's look at some examples of the phony economic "stimulus" babble.
(The following analysis of "economic stimulus" comes from http://www.nationalpriorities.org/budget/EconStim.html#effective.)
"The House last night passed the 'Economic Security and Worker Assistance Act of 2001' which purports to be an economic stimulus package."
The word "purports" is evidence that the idea of "economic stimulus" is phony and fraudulent. When one expert says the other expert's program "purports" to be an economic stimulus, it indicates that the experts themselves don't agree on what an "economic stimulus" is.
"The issue of economic stimulus is, however, presumed dead for the year, as not enough votes in the Senate are expected to support this bill.
"A commonly asked question is why many Senators will not support this bill. Many Senators feel unable to support the legislation because it does not provide enough assistance to the unemployed."
So here is part of the definition of "economic stimulus": It is charity, pity, welfare to those not working. How does it benefit the economy to reward those not working? those who are uncompetitive and unproductive? Why not just call it "welfare" or "charity"? Who benefits other than the recipients of the handouts?
What about the working poor? How does it benefit them to have to help subsidize the unemployed? This charity to the unemployed must be paid out of someone else's pocket. It is a mere redistribution of wealth from the productive to the unproductive. Why should this be called "economic stimulus"?
"This package, like the other House version discussed below, is still predominantly made up of tax cuts (85%) and will be ineffective. It is unlikely that businesses will undertake new investments just because they receive a tax cut."
Here is another identifier of "economic stimulus": It will somehow cause businesses to undertake new investments.
New investments? Why is that necessarily a good thing? Investments in what? Are there some new investments which businesses should be doing which they are not? What is that presumption based upon? If there is something out there worth investing in, why shouldn't we assume that businesses will do that investing without any external "stimulus"?
Where is it engraved in gold tablets that businesses must always be investing at a certain prescribed level, and that below this level they are shirking their responsibility? How do we know there isn't some good reason for a decrease in investment? Why shouldn't we assume that if there is something worth investing in, businesses will invest in it? and that if there is a decrease in investment there is a good reason for that decrease? and that the businesses will increase their investing on their own at the proper time?
So if "stimulus" means causing more investing than businesses are prone to do at a given time, then what is the point of it? What is the reason to try to cause businesses to do this artificial investing? Who says what is the proper degree of investing? No matter how much investing there is, you could always have more. Why make a religion out of investing? Why not just let people or businesses invest if they want to? What is the argument for whipping them along to do more?
"Businesses make investments when their markets are expanding - during a recession, the opposite is happening. This bill accelerates tax cuts to middle- and high-income taxpayers - neither of whom should be targeted for tax cuts if economic stimulus is the goal."
And yet, other experts say it is businesses who should get the tax cuts, and these are mostly middle- and upper-income taxpayers. Again, the experts on "economic stimulus" directly contradict each other. The idea of "economic stimulus" is fraud and quackery, on both sides of the argument.
"What does the Senate Democratic version of the economic stimulus package include?
"On November 8, 2001, the Senate Finance Committee passed 'The Economic Recovery and Assistance for American Workers Act of 2001.' The act has several provisions which would cost $67 billion in FY2002 according to the committee. Included are the following to address displaced worker and other community needs:
"Rebate checks to those who did not receive a full rebate this summer"
What is this? It sounds like a call for some kind of justice. An airplane flies over a city and drops a half billion dollars down onto the population. But some of the people below missed out and didn't get their fair share. So the "economic stimulus" idea is a compensation to make up for this injustice by giving these left-out ones a special shot, so they will get their fair share.
In other words, an "economic stimulus" is an effort to compensate for an earlier injustice, where some of the population got some free money while others got left out. But wait! Why was the first free money given out? Why pour money out onto any of the population in the first place? If a later "stimulus" is needed in order to make up for an earlier unjust "stimulus," what was the purpose of the first "stimulus"? Why not just eliminate all these phony stimuluses? If each stimulus is unjust and has to be made up for with yet another later stimulus, why even start down this road at all? What purpose is the stimulus supposed to serve in the first place?
"Provide a subsidy for COBRA continuation coverage for unemployed workers ($6 b);"
Again, pity to the uncompetitive and unproductive. What is the purpose or the benefit of babysitting these unemployed? What is wrong with workers that they cannot save their money when they are working so they can be prepared for the possibility of getting laid off? This babysitting is not done for businesspeople who get "laid off" (i.e., whose business fails). Independent contractors are expected to be grownups and be prepared for future possibilities. But not wage-earners. These are crybabies, or are treated like crybabies.
And how does this benefit the economy? How does it make the economy better to treat people like crybabies and encourage them to be irresponsible? Why is this called a "stimulus"? Why should we want to stimulate people to be irresponsible and parasitic?
I.e., corporate welfare to the medical industry. A medical bill payment service, which does little to make people healthier, but only pays their medical bills, thus encouraging people to overuse medical services and run up health care costs and waste other people's money on unnecessary and sometimes harmful drugs and on often unnecessary treatments for psychosomatic illnesses and on illnesses which they would recover from just as quickly without any medical help.
How does this benefit the economy? What of substance does this do, except to divert society's resources away from other sectors of the economy which return more value per dollar spent?
"What is similar to the House passed version of economic stimulus is tax breaks for business. As discussed below, tax breaks for business are an ineffective way of stimulating the economy because businesses do not invest when they know their market is shrinking, not expanding."
What? What's that? Did you catch it? It is an ineffective way to stimulate the economy with tax breaks because businesses do not invest when they know their market is shrinking rather than expanding.
What is this saying? It clearly implies that tax breaks WOULD be an effective stimulus if only businesses during such times WOULD invest, i.e., would invest when their market is shrinking rather than expanding. And this would be a good thing? It would be good for businesses to invest even when their market is shrinking rather than expanding? Why? Why would that be a good thing? Why should a business be encouraged to invest when its market is shrinking?
What is the point of a so-called "stimulus"? Why is it a good thing? The above quote clearly implies that a "stimulus" would be something that encourages businesses to invest even when their market is shrinking rather than expanding. Again, it is economic quackery, a gimmick which promises to make the economy better in some way, and yet, when logic is applied, where is the good? where is the economy made better? How could it ever be better for a company to increase its investment when its market is shrinking rather than expanding?
Wouldn't it be more rational for the company to first change its nature in some way so as to find an expanding market, i.e., find a real demand out there to meet, rather than being encouraged to increase its supply to a decreasing demand? Perhaps the market is shrinking because the product or service just isn't all that great and the company needs to change itself and find a different market. Sometimes the need is for the company to improve itself, not simply invest in more production of a deficient product.
"Also, if giving businesses incentives would do the trick, then lowering the interest rate as the Federal Reserve has done over the past year would have been effective."
Do what trick? entice companies with shrinking markets to invest even more in their inferior or uncompetitive production? Is that the purpose of lowering interest rates? to entice companies with shrinking markets to invest more in production for those markets? Maybe the whole business of lowering interest rates is just more quackery which pretends to do something to benefit the economy. But what? If to entice uncompetitve companies to continue being uncompetitive or increase their uncompetitive production by investing more in markets that don't want their product, then maybe the whole scheme of lowering interest rates to "stimulate" the economy should be scrapped altogether.
When will someone say what the real benefit is of "stimulating" the economy? When will they explain this as something of substance, rather than the constant refrain of more "growth" and investment and "jobs" -- more demand, more this, more that? Who says we need more of all this? Who says the marketplace left alone is not giving us the right amount of these things without artificial "stimulus" from the state?
Back to the parasite programs. And how are these good for the economy, i.e., rewarding the unproductive at the expense of the productive?
"There are two reasons these types of benefits are important. Firstly, they specifically target some (but not all) of those most affected by economic recession - displaced workers."
Again, pity, charity, handouts to the poor victims. So economic "stimulus" is just welfare handouts in disguise.
And now here comes a virtual definition of economic "stimulus".
"In a recession workers are laid off which means their disposable income decreases. If disposable income decreases, consumption decreases, which exacerbates the affects of an economic downturn. The fall in demand can only be stemmed by . . ."
There it is. A "stimulus" is stemming a fall in demand. So a fall in demand is a bad thing which must be stemmed, and this stemming the falling demand is the "stimulus". So any time demand falls it's bad? It's OK for demand to rise, but if it ever falls, that's bad and the fall must be stemmed? Why? Why couldn't it be good for demand to fall? Is there no time when a fall in demand is good? Why does a fall in demand always have to be a bad thing?
Suppose the falling demand is not stemmed? What then? Will it automatically continue falling forever and never stop falling? Does some "stimulus" have to be injected to stop the fall or it will fall endlessly and all production will end and everyone will starve? No, surely that's not the intention. Even if there is no "stimulus" the fall will finally end at some point and turn back up.
And so now, why is this natural turning point not just as good as the alternative turning point which would be caused by the "stimulus"? Why couldn't we assume that the natural turning point, where demand would stop falling on its own, is not just as legitimate as the artificial one which would be caused by the "stimulus"?
How do we know that the economy is performing better simply because the turning point is moved forward or is made to happen earlier? Doesn't this presume that any falling is automatically bad and that the earliest possible stopping point is the best one, and that any delay in this stopping point or turning point in demand is necessarily bad, and that therefore any fall at all is bad and, if possible, should be prevented altogether, if possible?
But what a silly presumption that is! Why? Why is any fall in demand automatically a bad thing which should be prevented if at all possible? If such a presumption is made, then does it not follow that demand should always increase, and should increase faster and faster, that not only is a fall a bad thing but also that any slow rise is worse than a fast rise?
Doesn't this imply that the faster demand rises the better it is? always, without exception? faster, faster, more demand, more still, ever increasing, demand, demand, more and more demand, at ever increasing velocity, until everyone's life is filled with nothing but constant frantic demand, and presumably constant buying and selling, every waking moment more buying and selling, at ever increasing prices, faster faster, more more, buy and sell, sell and buy, higher prices, moving money faster and faster and faster still, until everyone is moving trillions of dollars per second, no time to enjoy the product, just buy and sell and buy some more. Isn't that what it means if we assume that any fall in demand must be bad? What a sick notion!
But, you say, it's only in a "recession" that it's bad for demand to fall, only when workers are laid off and their "disposable income" decreases and their consumption decreases. But how much decrease is too much decrease? And which workers, how many workers? Is it that some critical mass is reached, some level of decreased income and consumption at which finally the falling demand must be stemmed? Why that particular level? If nothing whatever is done to stem this falling demand, won't it finally turn anyway and come back up? Why only the incomes of workers, i.e., wage-earners? What about entrepreneurs and investors? Why isn't it also bad for incomes of investors to fall because their businesses do worse or fail?
Thesis: An "economic stimulus" is always a gimmick which benefits some members of society at the expense of others and imposes a slight overall net loss to the whole society, because it is an artificial interference into the marketplace not based on competitive supply-and-demand and serving consumers, but is forced upon the politicians by interest groups who hope to gain at the expense of others. The unhindered competitive marketplace produces the most overall net wealth to society, not tinkering by politicians picking winners and losers and manipulated by special interests and lobbyists.
Where is there any evidence that an "economic stimulus" is anything other than the above?
"In a recession workers are laid off which means their disposable income decreases. If disposable income decreases, consumption decreases, which exacerbates the effects of an economic downturn. The fall in demand can only be stemmed by decreasing the fall in unemployed workers' disposable income and/or new government spending."
What is this saying? The "fall in demand" can only be stemmed by stopping the fall in workers' incomes or by new government spending. So if the government doesn't step in and do one of these two things, the demand will continue to fall endlessly until there is zero demand, followed of course by zero production and so mass starvation. The whole country, even the whole world, will starve and all human civilization will come to an end. Right? The demand must keep falling faster and faster if the government doesn't step in and do one of these two measures.
Is this the way the economy works? The government steps in and boosts workers' incomes, and if it didn't do so, demand would fall without end and all human civilization would perish for lack of demand?
Isn't investment also the same as more spending? This is increased spending just as surely as if it were done by consumers buying products. This is more money put into circulation, just as putting money into pockets of consumers is adding more money into circulation. Isn't this inflationary? Doesn't this extra money in circulation create an inflationary pressure which wouldn't otherwise exist? Won't this result in increased prices of the items bought by the investing companies? Even if it's not measurable because it's a small increment, still, won't this new money being invested (spent) cause incremental inflationary pressure at least for the products bought by the investing companies?
How do we know this new inflationary pressure will not effectively offset the supposed "stimulus" effect and produce a final net result of no increased investment overall during the year or so after the "stimulus"? The larger the "stimulus" (extra money (to investors)), the greater will be the inflationary effect, the higher the prices for the capital goods bought, as more and more money is pumped into circulation, which means in effect an antistimulus, because higher prices are effectively a reduction in income to buyers. So any "stimulus" now will be offset by an equal antistimulus later. And so what is the net gain?
The initial "stimulus" might be followed at first by an increase in spending, before the inflationary pressure, which would lag slightly behind. But this lag of inflation behind the spurt in spending, at the beginning of the process, will be matched by a later lag, after the effect of the inflation is felt and buying drops off again, and this later lag will be between the dropoff in buying, caused first by the incremental higher prices, and the ensuing decrease in the inflationary pressure, which finally fizzles out. In the end, the inflationary pressure caused by the increased buying can be expected to cause as much "antistimulus" to the economy as the original "stimulus", thus cancelling its effect.
If a trillion dollars (or 20 trillion) is pumped into the economy, whether to consumers or to investors, will this really cause a boom? an increase in production of wealth? Why wouldn't it just cause a mad flurry of spending, followed by so much inflation that the whole "stimulus" effect of this extra money would just be offset by the antistimulus effect of the resulting inflation and higher prices? Why should we assume that any amount of extra money pumped into circulation will do anything other than cause a temporary spurt in spending followed by an equal slowdown as a result of the inflation which must necessarily follow? whether the "stimulus" is large or small? If it's only a 20 billion $$ "stimulus", then the resulting inflation will result in only a 20 billion $$ antistimulus. Why assume that a small increment of "stimulus" will have no inflationary effect? Why shouldn't it have a proportionally small inflationary impact rather than none at all?
This seems to argue that the scheme would be a great idea if only the businesses would in fact invest in new production. But what difference does it make where the new money is spent? Doesn't any additional spending caused by the "stimulus" have an inflationary effect and thus nullify the "stimulus" eventually? Probably the businesses will invest more than they would have without the tax break. Perhaps they won't invest much, for the reasons given above. It's relative. The point is that they will invest more than they otherwise would have. This is beside the point. The fact still remains that whatever extra investment is stimulated here will be offset later by the eventual antistimulus caused by the inevitable inflation resulting from the extra money put into circulation. A higher cost later is an antistimulus when it is paid just as much as a current lower tax is a stimulus now.
We are assuming here that the tax cut "stimulus" is not accompanied by reduced spending, but is a net infusion of new money into circulation, caused by deficit spending. We also haven't considered the theory that the "stimulus" means putting money into the hands of those who will spend it quicker. This might not necessarily mean more money put into circulation, but just taking it away from those who don't spend and giving it to those who will spend it. This notion is also faulty and in the final analysis incoherent babble.
If we add to this confusion the problem of increasing government debt, which means higher interest payments out of future budgets, it is hard to understand why anyone with any common sense can be in favor of these continued deficits on the pretext of creating an "economic stimulus". No matter what form the "stimulus" might take.
But, you might argue, we need a stimulus today, whereas a year or two or three down the line we won't need one and so we can pay it back then when it won't hurt the economy. But the reality is that politicians are almost always insisting that the economy needs a stimulus. The economists and politicians almost never see a time when a stimulus is not necessary. Virtually every fiscal year they are calling for an economic stimulus package. And even when the economy seems OK and not in need of a stimulus, no one ever says that it's appropriate to pay back earlier debt at that time, because to do so would "kill" the recovery and "send the economy into a tailspin," since it would mean raising taxes or cutting spending. No, they never want to "tamper" with the economy by raising taxes to actually pay back earlier debt. To pay for new spending programs, yes, but not to pay down earlier debt.
Perhaps once or twice during the budget surpluses of the '90's there was a small amount of payback of earlier debt. Extremely rare, and only a small increment of actual payback. The real payback is the interest payments. If any real benefit can be assumed to have come from the "stimulus" measures over the years, surely it is more than nullified overall by the huge interest payments on the national debt which have resulted from all these deficits. These interest payments are another form of antistimulus, because they surely take money out of the hands of those who would spend it quicker and give it back to those who spend it slower. One way or another, there is always an antistimulus that offsets any earlier benefit from the stimulus. Stimulus at point A --> Antistimulus at point B. No net gain for the economy overall.
But there are always some winners and some losers with any "stimulus package". Depending upon the nature of the stimulus, certain interest groups will extract a benefit which comes at someone else's expense. A benefit which of course was not earned but gained through their lobbying effort. There is an overall net loss to the economy, because the winners gained an unearned profit, plus the resources expended on the lobbying effort are a net waste. It is an example of how productive energy is diverted away from serving customers and toward currying favor from politicians.
"However, eliminating the AMT permanently provides no incentive to invest today. Economists generally agree that any incentive to business must be temporary in order to boost the economy.
"More importantly, there is no reason that businesses will invest just because they have been given money by the government or will enjoy a higher profit due to the reduction or elimination of taxes. In other words, eliminating the AMT and providing corporations with refund payments only provides them with more cash. This, then, might be considered a bailout, but it is not the same thing as giving an incentive for investment."
What an idiotic debate this is! What is the purpose of a tax? To have something in place so that during economic bad times it can be withdrawn in order to cause a "stimulus"? What is so annoying here is the assumption over and over that if only business would "invest" then the "stimulus" must be a good thing, but that because companies really will not invest, therefore the "stimulus" is really a bad thing.
If the tax is an efficient revenue-raiser, then use it. Otherwise abolish it. Its purpose is not to serve as something to withdraw during a recession in order to make businesses invest and "jump-start" the economy.
Why must we keep assuming that businesses are not investing enough? How much investment is the right amount? Why not just keep taxes at whatever level is necessary to pay for the government programs and let investment go up or down as it will? Where does this unproven doctrine come from that we must do something to cause businesses to invest more?
It's clear what's going on here: Someone always benefits from a "stimulus" while someone else always pays for it. This constant battle, this squabbling, this sparring over how to "stimulate" the economy is a battle being waged by some who will gain a benefit, through pressuring the politicians for tax policy that favors them and will penalize others. There is no way to manipulate tax policy to "stimulate" the economy and provide a benefit to all, but only to enrich some taxpayers at the expense of others. That's all this is. You can be sure that, however it's done, if you did not gain a tax benefit and someone else did, they got it at your expense, because one way or another someone else must pay for it. The econo-babblers can spin the numbers inside out, but all their jibber-jabber does not change this basic fact of life.
"Much of the debate around economic stimulus has revolved around cuts in business taxes. The argument for business tax cuts is that businesses will have more incentive to make investments. Lower taxes - for example, by allowing a higher rate of depreciation of new purchases - reduces the cost of capital. Reducing the cost of capital means that a firm's costs are lower. Lower costs means higher profits. In other words, firms will want to make new investments because they will make higher profits.
"However, over the past year, the Federal Reserve has consistently lowered the interest rate. Lowering the interest rate has the same incentive mechanism as reducing business taxes. A lower interest rate makes new investments more profitable. But lowering interest rates has not been successful at stimulating the economy enough to prevent recession. Even though the interest rate has been lowered, businesses are still not clamoring to make new investments."
Here again the argument can be made that the lower interest rates did in fact cause business to invest more than it otherwise would have. Why not? Just because investment is low doesn't mean it's as low as it might have been. With higher interest rates the investment would probably have been lower still. So the tax-cutter can argue that lower taxes will at least prevent investment from decreasing even further, just as the low interest rates did. Low and high are relative. If you believe in the economic "stimulus" babble, why not accept the idea that lower taxes as well as lower interest rates do "stimulate" the economy by causing more investment than there otherwise would have been. Even if it wasn't enough to "create" new jobs, at least it probably saved some jobs from being eliminated. Isn't that also a justification for the "stimulus"? If "creating" new jobs is good, isn't it also good to prevent the destruction of already-existing jobs?
This is a pointless debate. You can never prove empirically that a "stimulus" of any kind did or did not work. If the basic theory is accepted, that more money in someone's pockets will get the economy humming again, by "creating jobs," then the econobabbler who favors this particular "stimulus" can always say, "Well, without this stimulus there would have been fewer jobs. If we didn't create any new jobs, at least we prevented some old ones from being eliminated." Wouldn't it make more sense to quit pretending that somehow we want to make business invest more or "create" jobs or give the economy a "shot-in-the-arm"? Isn't it all SNAKE-OIL economics? Do we need any of this? No, what we need is for the government to pay for its necessary programs, balance its budget, and cut out the "stimulus" babble once and for all. It's all phony, unscientific, unproven, and a hoax.
The logic here seems to be that the stimulus would be fine if only it would cause businesses to invest in products which they can't sell. But because we can't get them to do this, therefore the stimulus is a bad idea. There is something wrong with the values in this kind of thinking. Why would it be good for business to invest in something for which there is no market? Can't we see that this "stimulus" concept is absolutely wrong, even if it were successful. It aims at a goal which is a wrong-headed goal: to get business to invest in production which is unprofitable. Why should there be any issue here? What purpose could be served by inducing business to invest in unprofitable production? Even if the "stimulus" should succeed in accomplishing this, why should we want to provide such a "stimulus"? Why would we want to accomplish such a perverse goal?
But suppose this perverse goal is achieved and the businesses invest more than they would have otherwise. Won't this then be followed by an antistimulus later that will negate any supposed benefit from this "stimulus" now? There is no reason to assume an overall net benefit, even if the "stimulus" does cause some initial investment it's intended to cause. The incremental inflation caused by this increased spending will simply cause the opposite to happen later and snuff out some later investment that otherwise would have taken place. The kind of investment needed in the economy is not that which is induced by some government infusion of money into the pockets of businesses, but by favorable market conditions, new innovation, more business efficiency, better planning.
"Growth in consumer demand both domestic and abroad is slowing to practically a stand-still. With sagging confidence in the economy, consumers are beginning to save more of their money rather than consume."
So what? Why do we keep assuming there must be more demand? that saving is bad, that more consumption is necessary? Where do these nonsensical dogmas come from? Let producers try to come up with something consumers want to buy. If they don't, then let them curtail their production or go out of business. What is the problem here? Does someone actually believe that the world is going to come to an end, that all consumption and production is going to wind down and stop and civilization will crumble for lack of demand?
Again, it's all relative. Of course they'll do more than they would have without the "stimulus". Suppose you give each business a big subsidy. That would cause them to produce more and hire more workers (or lay off fewer) than they would have otherwise. And even if they don't buy that new equipment today, a "stimulus" will cause them to buy it sooner than they otherwise would have. The problem is not that the "stimulus" won't cause them to invest -- the problem is that the antistimulus later will stifle the investment they would otherwise do later. And thus, no matter what happens, a "stimulus" NEVER works in the long run. It's ALWAYS cancelled later by the antistimulus down the line and so never really makes any sense. And so, arguing that it will or won't cause the desired investment is nonsense.
"The term 'Keynesian economics' generally refers to the belief that the government should intervene in the business cycle; in particular, the government should spend money when the economy is in a downswing in order to increase economic activity."
Why? Why should the government try to cause more economic activity? Maybe there's a good reason for the inactivity during the downswing. If there was really some increased activity that businesses should be doing, why aren't they already doing it? What is the point of economic activity? If there's less need for it at a particular time, maybe it's good that there's less of it. Why should we assume that economic activity should never decrease? Why is that necessarily a bad thing?
If there's something the government should do about the inactivity, why wouldn't it be to simply take advantage of the laid-off workers to get some of its own business done at lower cost by hiring some of them at low wages. And balance its budget as usual, as it should always do, and let the economy make whatever adjustments it requires in its own good time, according to market demand. If satisfying market demand is not the purpose of business, then what is its purpose? Increased "activity" per se is not what business is about, but meeting market demand, satisfying consumers. And anything the government does to "goose" the economy at point A will only be offset by an antigoose at point B.
The economy is going to hit bottom at some point and come back up anyway, right? So who is to say that that particular point is not the best point for the economy to come back? How do you know that the antistimulus which will come inevitably is not going to do as much damage at point B as any supposed good produced by the "stimulus" at point A?
I.e., debt money. If they increase taxes to pay for it then the assumed benefit cannot occur, because then the government is just taking money away from one place, causing an antistimulus at that point, in order to pay it to others who will spend it and hopefully cause the stimulus. So for the stimulus there must be no increase in taxes to pay for it.
But even without the higher taxes, isn't there the antistimulus, inflation, which probably begins very soon after the "stimulus" and continues on gradually. Why shouldn't the resulting inflation begin very soon after this "stimulus"? How do we know that every so-called stimulus is not cancelled out, or begins to be cancelled out, very soon after a stimulus by an antistimulus due to the inflationary pressure that must be caused by this increase in the money in circulation?
You can argue that we don't know for sure of any such inflation, but then again we also don't know for sure of any stimulus effect. It's all theory. No one has ever proved that any of this happens. Only in extreme cases can we be sure that an increase in money caused such a change, such as in Germany in the 1920's when money was printed at a fast rate and prices skyrocketed. In such a case we can be sure. But other than such an extreme case, we can never prove absolutely that this or that "stimulus" caused this or that increase in spending or investing or economic growth, or this much more money in circulation caused this or that incremental increase in inflationary pressure.
But it is reasonable to assume that if a huge new injection of money into circulation causes a huge inflationary effect and increased spending, then a small injection of new money will also cause a small increase in spending and inflation. Until someone proves otherwise, this is the only reasonable assumption to make. A large stimulus causes a large response, a small stimulus causes a proportionally small response. And based on this reasoning, we can only assume that any economic stimulus will be accompanied soon after by an antistimulus that will offset the stimulus. The increased spending and economic growth will likely be more immediate. But the inflation and antistimulus probably begins in small degrees within weeks, and by six months or a year out, it is quite likely that the original stimulus is completely cancelled out.
Sellers who were already thinking about increasing their prices will now be stimulated to do it when they see the increased business, when otherwise they would have waited longer. Other sellers will see the increased business and start thinking about increasing their prices, and a few weeks or months later they will do it. Still other sellers who were thinking about lowering their prices or offering discounts, will change those plans because of the higher demand they notice. The inflation will gradually set in.
"1. Directness
"Economic output (or, gross domestic product, GDP) is all of consumer spending, business investment, government spending and exports . . . . In order to be effective, an economic stimulus package must make an impact right away on one of those elements so that overall output is increased. Any increase in, for example, consumption, will multiply through the economy creating more jobs and stimulating more consumption and investment."
Perhaps. But just as likely it will add inflationary pressure, causing prices to go higher than they would have been without this extra demand from consumers. This inflationary pressure will then cause an antistimulus effect and begin cancelling out the stimulus. Higher prices are in effect a reduction in income, and this effective reduced income is an antistimulus just as surely as an increased income is a stimulus.
AND to more inflationary pressure.
But the more direct it is, and the more immediate, the more direct and immediate will be the resulting inflationary pressure and the antistimulus.
"2. Size
"The rule of thumb is that the size of the package should be at least 1% of GDP. Anything less would not make a significant enough impact to bring the economy out of a recession. For the US, this amounts to about $100 billion. Other economists, such as Godley and Izurieta, argue that currently, the economic stimulus needs to be as much as $600 billion."
So by one theory, $99 billion will do no good, not even $99.9, but increase it by .1 billion and SH'ZAAM! the economy is saved. But by the other educated theory, a $599 billion stimulus won't do any good but with one billion more, SH'ZAAM! we've got a stimulus that'll turn the economy around and send us into prosperity. That's real smart.
"The package should not have long-run effects which are damaging to the economy or create a long-term problem for government budgets. In other words, while deficit spending (spending more than revenues) may be called for, it is inadvisable to set up permanent policies such as permanent tax breaks which put the future budget outlook in danger."
This raises the question of degree. If a high degree of stimulus, or debt, is supposed to be bad, then isn't a low degree of debt also bad but just to a lower degree? Only a high-enough stimulus ($100 billion by one theory, $600 billion by another) will produce enough benefit. And yet, a too-high stimulus is admitted to cause future budget problems. (Or if you say this is not admitted, then why not make the stimulus $6,000 billion instead of only $600 billion? Of course it is being admitted here that there is a danger if the stimulus is too high.) But why is a low stimulus thought to be of no danger at all? Why doesn't a low stimulus cause a low degree of future danger while a higher stimulus causes a higher degree of danger? This seems to be the logical connection between the magnitude of the stimulus and magnitude of the benefit and future danger. And so where is the logic which says that at a certain level the danger is still acceptable but that the benefit is great enough? Why not instead say that if the level is low enough so that there is no future danger, then it is also too low to produce enough benefit? After all, the level of danger and the level of benefit go up and down together.
As far as having permanent tax cuts into the future, let's get honest. The purpose of such tax cuts is not to "stimulate" the economy. The proponents of such tax cuts simply believe those tax rates are too high anyway, regardless of any need for a so-called stimulus. They use the "stimulus" rhetoric only as an excuse to push through tax cuts that otherwise would not get the needed support. Both sides of this debate are dishonest and are pushing their ideological and/or special interest agenda under the "economic stimulus" babble, because somehow a gullible public wants to believe there is some miracle wand-waving gimmickry using tax-and-spend measures that will magically stop a recession and launch the economy off into another boom. As long as there are gullible customers out there, the snake-oil hoaxters will continue peddling their wares.
"The Bush Administration came out during early October favoring a $60-75 billion stimulus package comprised mostly of tax cuts. However, this package would really cost more than estimated because a number of the proposals involve permanent tax cuts and therefore would alter the budget outlook for every year into the future."
This warning about altering the budget outlook for the future -- what does it mean? Either it means that there will be huge deficits in the future, or it means that taxes will have to be increased in the future (or spending reduced) in order to avert such deficits. Either way, it means we are going to pay a price down the line for these deficits now. Whatever stimulus benefit, if any, comes at a cost later. The only way to avoid it would be to go into debt still further, spend still more but don't raise taxes, even reduce taxes still more. That will "goose" the economy yet again, not really to cause a net stimulus but rather to ease the cost we must pay for these continued stimuluses. Those higher interest payments and higher federal taxes to cover them, are another form of antistimulus. They make any future "stimulus packages" still more expensive.
Isn't it clear that whenever the Congress plays games to "goose" the economy, it is only creating a crisis later which will require them to "goose" it still again in order to prevent an antistimulus caused by the earlier "goosing"? And the net result is that these never-ending interventions to "stimulate" the economy are done in turn mostly to undo the damage, the delayed antistimulus effect, caused by the earlier stimuluses. Perhaps there is an overall net "stimulus" effect as a result of the very first stimulus, but all the ones which follow are only attempts to head off the negative aftereffects of the previous stimulus measures. Looking at the overall picture, what is the real benefit of going down this path in the first place? What is wrong with just letting the economy slow down to whatever low point it will reach and then letting it come back up whenever it comes back up? What reason is there to believe that this turnaround point is not just as good as any other point which the government might be able to contrive with its "stimulus" schemes?
"(1) The wrong groups are targeted for tax breaks. These plans would deliver more tax cuts to the wealthy than to middle and low-income people. Citizens for Tax Justice has analyzed the bill introduced into the House and found that 41% of the tax cuts would go to the wealthiest 1% of taxpayers; almost 3/4 would go to the wealthiest 10%.
"The principle for making tax cuts to households as part of a stimulus package is to stimulate consumption. So, the most effective tax cuts would be ones that put money in the hands of those who will use it for consumption."
What business is it of the government to decree that there should be more consumption? or to "put money in the hands" of anyone for whatever purpose? What level of consumption is the proper level? Does this imply that there is something wrong with people who save most of their hard-earned dollars? If it were possible, would the government then want to penalize these ones by giving tax breaks only to those who spend their money fast? Would it be a good "stimulus" then to exclude all citizens from the tax cut who put too much of their money into savings? Should poor people who manage to put away some of their earnings into savings be punished for this?
Why not? If the above principle (to stimulate consumption) makes any sense, then the poor who save should also be punished by the "stimulus" package, not just the rich. While those who rush out and throw away their paychecks on booze and lottery tickets and then take out "payday loans" to tide them over to their next paycheck should be rewarded with lavish tax rebates to encourage them to do more of the same. And further, those few wealthy who do spend their money on lavish consumption should also be rewarded. Does this make any sense?
No, the idea that we should "put money in the hands of those who will use it for consumption" is nonsensical and idiotic, and as long as such perversion as this is paraded before us in the media as some form of respectable economics, it indicates that something has gone fundamentally wrong, there is something inherently foul and degenerate at the core of today's economics debate.
Let's call this what it is. This is not a proposal for tax cuts. Those who argue this way need to stop playing with words and admit that what they want is not tax cuts, not even tax rebates, but some form of subsidies or charity handouts to households. This is an argument for periodic distribution of subsidies to middle- and low-income households so they will have money to spend which in turn will "stimulate" the economy. It really has nothing to do with taxes at all. To call it a tax cut or say it is to rebate their taxes is fraudulent. The principle of this kind of "stimulus" is to induce people to spend, not just taxpayers but anyone. Its purpose is achieved even if the money is paid to consumers who never paid any taxes at all.
This isn't so different than simply flying a plane over a city and dumping out a billion dollars or so. Perhaps the form it would take would be a payment of $1000 or so to every American. Why not? Its basic purpose is to put money into people's hands so they will spend it. A subsidy of $1000 per person, in a population of 300,000,000 would be $300 billion. So those who favor this kind of "stimulus" package should cut out the "tax-cut" babble and simply call for a $1000-per-person subsidy to every American citizen. If they were honest, this is what they would propose.
Both sides of the "stimulus" debate are liars and demagogues. The Republicans who want tax cuts are not really in favor of a "stimulus" to the economy, and the Democrats who want to stimulate consumer demand do not really favor "tax cuts". Both sides are lying about what they really want.
And therefore, the solution is not to give money to the business, but rather to its customers, so their demand will increase. Suppose that is done. $1000 to every American consumer, e.g. What will happen? Well, even before there is any new output to satisfy this demand, there will be price increases. Surely this will be the earlier reaction. New output takes some time to produce. With all this new money now circulating, prices will go up, i.e., there will be inflation. Even the cost of production will go up. So right away an antistimulus begins, even before there is new output. So the new demand will get knocked back down very quickly.
Of course you could say that the tiny inflationary pressure will have very little effect. But you could say the same about the additional money circulating and higher demand. How long does it take to spend the extra $1000? Most poor families will spend that money within a week. A lot of it will go down the drain on lottery tickets and bingo games. Some of the casinos will invest in some new construction. Some items on store shelves will sell out, so there'll be some empty shelves until a month later when everything is restocked, and demand will be back down to where it was before, or even lower, because of the new price increases. And so what's the net gain to society?
In addition to the unlikelihood of any long-term economic benefit, what about the damage caused by the false hope when the politicians promise an economic turnaround, prosperity around the corner, because of their "stimulus" scheme? What about a real need for change, for some businesses to reorganize or downsize, for some workers to retrain, for some families to reform their budgets, for some banks to foreclose on bad loans, for some inefficient farmers to find a new career? When there are economic bad times, isn't it partly because people need to make business changes and overhaul their finances? But when the politicians promise them a recovery and blame the problem on low consumer demand, does this not then implant a false psychology into people's minds which then delays them from making the changes of substance which the economy really needs in order to truly recover? Doesn't it merely forestall the inevitable and actually prolong the bad times?
You could argue that in economic bad times there are "innocent victims" who did nothing wrong and cannot be expected to make any change in their particular job or business. But still there are those who can and should make changes. Opportunities are there for some to improve and make a smart investment or career change, and yet, because of the false promises from politicians they will instead rely on the economic "stimulus" and on lobbying the politicians to fashion a tax break just right for them. Real change of substance in the economy gets replaced by the games, the snake oil, the manipulations of money, the multiplier effect, the ripple effect, the lobbying, the politics, the babbling economists, each one claiming to offer the more effective snake oil.
Again, they can always claim that at least the economy didn't get worse during this time, which it would have if interest rates had been higher. There is no way to prove or disprove these theories. As long as you accept the premise that we need to find a way to "goose" the economy and cause more business investment, then one snake-oil theory about how to do this is as good as another. You can't prove your snake-oil theory any better than the other guy can prove his.
If this infrastructure is needed, then it should be done anyway, shouldn't it? Do we need the "economic stimulus" argument in order to justify spending on needed infrastructure? If there is needed maintenance on a bridge or road, shouldn't the case be made based on the need for that maintenance for the benefit of society, for transportation needs and so on? What difference does it make to bring in the need for an "economic stimulus"? Shouldn't this infrastructure be taken care of entirely on the basis of the need for it to satisfy the public's need for that infrastructure, regardless of the supposed "stimulus"?
Suppose, on the other hand, that the maintenance project is not really needed for an infrastructure purpose. Suppose the perceived benefit, for transportation or public safety, is negligible compared to the cost, and therefore the maintenance should be put off for another 10 or 20 years down the line. In that case should the "economic stimulus" argument be used to cause the project to be funded anyway, just for the sake of the jobs and "stimulus"? If not, then doesn't this mean that the "economic stimulus" argument is irrelevant? If we need that bridge or road or maintenance, for infrastructure purposes, then spend the money and do the work. But if it is not needed, or it can be put off several years, then don't do it. What does the "economic stimulus" have to do with it? Nothing. It is irrelevant. We should not build a bridge just because someone needs a job. We should build it because we need a bridge. Or we should not build it at all.
Did we really need those projects or not? If we did need some of them, then wasn't that enough reason to do them? If we have a need for some public works project, isn't it sufficient to point out the need and show the benefit to come from it and that it is worth the cost? What more reason is needed?
But on the other hand, suppose some of those projects were not really needed. Should they have been done anyway, just for the jobs? Suppose one of them was marginal, i.e., it offered a marginal benefit, but not enough to justify the cost. Does the "economic stimulus" argument then add enough extra reason to do the project, even though it would not be justified otherwise?
You might be tempted to say yes to this. But you fall into a trap if you reason this way. Remember, an infrastructure project can be totally justified on the basis of the need, e.g., the need for a bridge or road, without the "economic stimulus" need being any part of the reason for building that bridge or road. It can be built only for that reason, the transportation need, and for no other reason than that. But can the same be said of the "economic stimulus" need? Is it justified to hire people to do construction or maintenance work only to provide an "economic stimulus" and for no other reason? Can it be done only for the jobs and not for any other practical reason? Should it be? In that case you are talking about makework. Almost everyone says they are against makework. No, the work must have some practical benefit, they say. There must be at least some practical benefit, even if small. Only then is it justified, and the "economic stimulus" is only part of the justification for the work, not the total justification.
But this does not make sense. It is illogical to say that there is an "economic stimulus" benefit to be gained, but that this benefit is not possible unless it is accompanied by a practical needs benefit which goes inseparably with it. These are two different needs. Can you identify what this "economic stimulus" need is or can't you? It is usually described as some kind of putting money into people's pockets. Well, doesn't a pure makework project put money into people's pockets, whether the work had a practical purpose or not? So, why can't the economic stimulus need be met by means of a public works makework project which has absolutely no practical benefit to society, other than providing "jobs" to the workers?
What is the purpose of the "economic stimulus" if not to put money into someone's pockets? This is supposedly a need to be met, and it is not a need for infrastructure, for a road or bridge or dam. So, what need is it? Can you identify what this "economic stimulus" need is or can't you? Once you identify what this need is, then the question arises: Why can't this need be addressed exclusively, without any other need, such as a practical need for a road or bridge, being added to it as a necessary component? If this "economic stimulus" need is real, why can't it stand alone, just as the practical need for a road or bridge can stand alone as the only reason necessary to build that road or bridge?
Once again, there is a degeneracy, a perversion, which has crept into the thinking, which has us trying to concoct reasons for "jobs" or "economic activity" or "consumer demand" or "investment" for the pure sake of these themselves, whether they serve any other purpose, any practical need for benefits they are to produce for society. We need to re-examine this thinking and find the source of this degeneracy.
Even if the econobabblers are granted every presumption they make, that the "stimulus" can effectively start the economy going again and end a recession, that this can be done with no negative side effect such as any inflationary pressure that causes an antistimulus to cancel out the effect of the "stimulus", and that the new level of investment and job creation serves real needs and is never a form of "makework" or something artificial and outside the needs of the real marketplace, there is still the fact that every "economic stimulus" is an increase in the national debt, adding over time hundreds of billions of dollars in interest payments on that debt to be paid by future taxpayers.
It was said above that the "stimulus" has to be at least $100 billion to be effective, perhaps as much as $600 billion. Such a deficit as this adds billions of dollars annually to the interest payments. Probably more than $10 billion, possibly $20 or $30 billion or even higher -- every year, just for one "stimulus" package. Over ten years, that will be in the range of $100 billion to $200 billion paid out as the price tag for that one stimulus package. And no principal is ever paid. This price continues to be paid without end, as the interest payments continue into every federal budget for every fiscal year. So one "economic stimulus" package ends up costing future taxpayers more than a trillion dollars eventually. This is an obscenity which no one can justify, no matter how they twist the numbers and no matter how many "jobs" they create.
"Firstly, who receives the benefit of either a tax cut or a new expenditure matters. Low- and moderate-income households are far more likely to spend money that is put in their hands than high-income households. Why? Because as the numbers tell us, wealthy households tend to save a greater proportion of every additional dollar coming into the household compared to a low- or moderate-income household."
Here again is the perverse notion that we need to stimulate more consumption. Any consumption. Somehow, by going out and throwing away your money, whether on booze or at the horse races, you are doing a favor for the economy. You are a brave hero who should be rewarded with tax cuts or rebates, or -- oh hell, call it what it is -- with a subsidy, a virtual welfare check, to reimburse you for some of that spending. And those who saved -- shame on them! we'll penalize them and make them pay the cost of that subsidy to the heroes who went out and blew their paycheck within a couple days of receiving it (the sooner they blow it, the better for the economy!). Even if you're an economist or politician who preaches the need for the "economic stimulus", must you not confess that there is something perverse about this notion? if you are honest for a moment?
See there, a blatant contradiction! Saving money is good? How can they say it is good, but then turn right around and say it should be punished because we need more consumption? This is a total outright contradiction and refutes the entire case presented here for any kind of economic stimulus. The whole idea is a fraud and a hoax. If there was any respectability to this idea, it would not be necessary to put forth contradictions like this in order to explain it.
How much investment is too much or too little? There already IS investment. There always is. Who is to say that the amount already taking place is too little? And movement -- the economy is already "moving". What place is it of the government to dictate that it should move faster than it is anyway? What is this prejudice against less or slower? Why can't these economists and politicians leave the economy alone, leave the market alone, leave the buyers and sellers in peace, to invest and to move at their own pace?
Everyone knows that the economy eventually starts moving faster again after a slowdown, regardless of what the government does. There is no evidence that the government improves the process with its "stimulus" programs. Even if it could be shown that it was successful in causing some speedup at some point, so what? How do we know that was a good thing? Who is to say what is the proper speed, or whether it should start speeding up today or wait another month or two? What are these presumptions based on? No matter how fast the economy is going, or how slow, it could always go a little faster still, or a little slower. Or it could have moved sooner, or later. Who is the guru who steps into this picture and says the economy should have done this instead of that? that it should have picked up 10 days earlier, or 20? or should have gone 10% faster, or 20%? There is no rational basis for any of this.
"Thirdly, a stimulus package must lead to the creation of new jobs."
Really? And what if instead it leads to the creation of new robots and net reduction of jobs? Was the "stimulus" then a failure? Suppose vast new wealth is created by the robots, but there are fewer jobs. Is the "stimulus" then a disaster? Doesn't this "job" creation rhetoric get a bit stale over time? Why don't they just say "makework" and get it over with! Isn't that essentially what it means? Aren't we really talking about babysitting slots to accommodate unneeded or laid-off workers who otherwise might get into mischief and so need to be gotten off the streets? Why don't they just come right out and say it?
No, babbling idiot, that's not what they provide. THEY PROVIDE BRIDGES, ROADS, and other stuff that society needs. What if the construction and infrastructure projects were done by robots, and the workers were mostly eliminated (which could happen). What then? Then that kind of investment would be of no value? It would no longer "provide" those jobs and so would no longer be of any benefit? Again, it's the babysitting slots we're talking about. The need to get the riff-raff off the streets. It's the babysitting slots which "multiply through the economy" creating more needed babysitting slots for still more restless natives we need to put somewhere to keep them out of trouble, lest they commit crimes or try to get on welfare.
Yes, if need be, give them charity handouts. But better, create babysitting slots for them so it is an employer who takes care of them rather than the taxpayers. Remember, this is really makework we're talking about. Not producing practical benefits for society through work that we need to have done. No, if that need were met instead by robots, then our goal of jobs would not be met. It's the jobs per se, not the needed work getting done, that the "economic stimulus" is intended to provide.
In addition to reasons of pity and charity to the victim groups being targeted, it is also necessary to stimulate more spending. More spending for its own sake. And how much more spending do we need? We could always have more. Even after the "stimulus" is approved and is put into effect, the new spending is short of what it could be. Why not even more? How do the econobabblers know when the new spending level is enough? How do they know when the punishment on those who save is sufficient? Why don't they increase the stimulus and inflict even more punishment on those who save? Maybe they should get a double- or triple-thrashing instead. Maybe if we whip them hard enough they'll finally break down and repent and stop harming our economy with all that saving they're doing at the expense of those new "jobs" we need to create.
Anything? How about a tax on savings. Why not impose a 1% tax per day on any savings. 5%. Every day you leave your money in the bank you lose a little more of it. Why not issue money to people with a requirement that it be spent by a prescribed deadline? Print the date on the money, and if it's not spent by that date it expires, or its value diminishes. And any sellers who refuse to accept this dated money will be summarily tried and executed immediately by the economic stimulus police. That'll get the economy "moving" in a hurry!
You can contact the authors of this wonderful plan to save our economy at info@natprior.org.
Support them in their crusade to punish those who would destroy our country by saving their money and planning for the future instead of squandering it as quickly as possible and rushing down to their local check cashing outlet for another payday loan to tide them over.
If you have any comments on the above, have them posted in this web page (click here) or post them in the SocialContract.com Message Board.
Return to FreeTradeForever.com.