Let's Stimulize Some Reform, Not Stupidity.


Well, recession is barking at our door once again. With all the doom and gloom about our economic forecast is it any wonder the average American is sweating bullets about 2008. Not to mention the band fixes being proposed by both sides of the aisle to enhance their posture for the election year. Much of the stimulus package that is suppose to be a shot in the arm for the economy will amount to nothing more than a shot in the pocket book.

The stimulus package is like Britney Spears attempting self therapy, nothing more than a recipe for disaster. It is pointless and not much thinking has been applied to the long term corrections needed to avoid these monetary problems in the future. One fact about the package itself that I do find intriguing is the tax cuts for businesses. The "bonus depreciation," allows a company to deduct qualified investments from their tax liability. This in turn, should make investments more lucrative. Enhancing growth, creates jobs, and strengthens the economy. This portion of the package actually displays some forward thinking, unfortunately it ends there.

The problem with most of the package is the approach the government is using. It is nothing more than fiscal trickery, rather than sound monetary policies. For example, the personal rebates. This lagniappe, Louisianan for "something extra," is supposed to jump start the economy by giving the average consumer some money to spend. Okay, sounds great, until you look into it.

First where is the money going to come from? The Federal government does not have magical money powers like they think. There are only a limited number of sources the federal government can borrow the money from which will either cause future tax burdens, furthering a trade deficit, or less money for investments.

What about consumer attitude towards the money they are going to receive? Most people are living in debt, what do people with excessive debt do with any extra money they have? Pay bills.

This in turn keeps the average person's head above water for a month, maybe two. But what about after that? What has it really accomplished for the economy, other than keeping it going in it's floundering state for another couple of months. Most recipients of the 2001 rebate used their money to pay down their debt. Although, there was increased spending later in the year, credit for this was actually given to the tax cuts. Which consumers viewed as more permanent.

Then there is the households who will actually spend their money. The primary question is what are they going to buy? How many people are going to use this money for a down payment on a new car, a home, or even invest it? Need we forget that most U.S. firms sell their services and goods to foreign businesses? Most American consumers receive their goods from abroad. An increase in spending might be good for the retailers here in the States for a short term, but the greatest benefactor of this stimulus is foreign business.

If there is to be any correction then ideas such as the tax rebates for businesses must be looked into. This type of correction can create both short term and long term benefits for the economy. Other possible avenues are an attitude adjustment by the government. Let consumers and businesses decide how to spend their money and where to invest. A profit driven free market, has proven that if left to its own devices, can be wildly successful. Anytime government has interfered you have the result which we are facing today. Let politicians stay in politics not our pocketbooks.


mike volpe said...

A few things. Rebates have proven over history to be rather ineffective, and I doubt this one will be any different. A one time stimulus is usually not much of a stimulus.

One thing you didn't mention about the stimulus is the size. 150 billion is really like giving Bill Gates a grand and thinking that will make a difference.

Also, you once referred to it as monetary policy keep in mind that when the government acts it is fiscal policy and when the fed acts it is monetary policy.

I don't know what exactly you would do long term to fix this. The roots of this economic slow down have to do with irresponsible behavior. If you really believe that the government can control that, I would like to know how.

I am of the mindset that the economy is nowhere near crisis but rather in a softening period. I for one believe that all of this stimulus is way over board and that the stimulus itself will soon be the pre cursor to further economic problems. Keep in mind the Fed has already cut rates by over two percent in the last three months and now we are going to add some fiscal stimulus to that.

That is what I hope more people will discuss.

here is how I analyzed it...


CriticalThinker said...

I agree 100% rebates are ineffective. Especially ones, as you pointed out of this small of an amount.

I do not know what gave you this idea, "If you really believe that the government can control that, I would like to know how." The government has proven time and time again its ineptitude towards correcting the economy. This is my attitude towards the problem, "A profit driven free market, has proven that if left to its own devices, can be wildly successful. Anytime government has interfered you have the result which we are facing today."

As far as your last statement about a softening of the economy, agreed. Problem is with everythihng going on it is showing or weaknesses and problems. The general public is becomng more economically savy. They want long term reform and they are realizing that it starts with them and the private sector. The only government intervention should be de-regulization of the exsisting tax codes, on persons and businesses, and an attitude adjustment by the Fed. Let the market self correct and plan for the future.


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