A reminder to the morons saying that fiscal stimulus is a zero-sum game because it takes away from private investment:
1) The government possesses this bold new technology called the PRINTING PRESS. Go Google it. The government can -- and should -- print money to finance the deficit as long as short-term Treasury interest rates remain at 0% and wages remain in a deflationary spiral (and wages *are* in a deflationary spiral right now, you should look at wages, not at the CPI, to determine whether we're in deflation -- hint, we are, with over 16% unemployment or underemployment all of those people are making much less money than they did before).
2) The whole "live within your means" meme is *stupid*. There are two ways to live within your means -- cut your expenses, or increase your income. When my father's income got cut in half during the 1973 recession no amount of reducing our expenses would have kept the lights on and food on our table, providing the basics simply requires a specific amount of income, period. We had enough to cover the mortgage on the house, and fuel and maintenance on the car to get to work, and that's about it. But he didn't say, "Sorry boys, we don't have enough money for food this month so you'll have to go scrounge food out of dumpsters." He didn't say, "sorry boys, we don't have enough money for electricity this month, so you'll have to just shiver in the dark at night." No. He went out and found a second job and increased his income enough to provide for our family. It's called "manning up", and it's as true for We The People as it is for households. Governments need to "man up" and do what it takes to provide the basic services that their constituents voted them into office to provide -- i.e., highways, public safety, and so forth -- even if that requires increasing taxes. As long as it is the *right* taxes -- i.e., *not* consumption taxes (sales taxes or etc.). A special property tax on million-dollar homes, a hike in income tax rates on incomes over $250,000, etc. will not decrease consumption but will pull money out from under (virtual) mattresses and put it back to use in the economy. Bringing up:
3) In a time of deflationary expectations, people are shoving money under mattresses (or, rather, into banks, which due to their own deflationary expectations are shoving it under virtual mattresses at the Federal Reserve) rather than spending money. This is because they expect the money to be worth more in the future (when they don't have a job, when interest rates go up, whatever) than it is today. Money under mattresses (i.e. not being used as backing for loans in the banking system or on the bond market, and not being used for investing in the real economy) does nothing -- nada, zero -- to create economic activity. Money not being used for economic activity is, for the purposes of money as a unit of exchange in the economy, useless. It's just lumpy mattress stuffing, pieces of green toilet paper with pictures of dead people on it. IT IS A VALID AND VALUABLE THING TO TAX "MATTRESS MONEY" AND GET IT BACK INTO THE ECONOMY. It will not reduce economic activity to do this, because mattress money *ALREADY* is not contributing to economic activity.
It annoys and irritates me that people keep pretending that government has no printing presses, that mattress money contributes to economic activity, and that increasing your income when you run into financial problems is not a valid way to handle financial problems. People, this is Economics 101 for cryin' out loud. I realize that the dishonest hacks on the right wing (the so-called "Chicago School") keep writing printing presses out of existence and deny the existence of mattress money, but even their founder Uncle Milt (Milton Friedman) knew better for cryin' out loud. I swear, people are just bound and determined to do the exact same friggin' mistakes that the government made in 1930-1931 that put the economy into outright collapse in 1932, even though we know from history that their recipe -- cut government spending -- just DOES NOT WORK for keeping a recession from turning into a depression.
Gotta go, time to re-read John Steinbeck's "The Grapes of Wrath". Since we seem so bound and determined as a nation to commit the EXACT SAME FRIGGIN' MISTAKES, I might as well get a heads up on how things will be. Sigh!
-- Badtux the Economics Penguin
I wonder if the only real difference is the internets. People can spread around more crap and fake horror and do it faster as well.
ReplyDeleteI like your idea about increasing slices rather than shrinking the pie. My favorite form of stimulus is to lower the eligibility age for Social Security and Medicare to age 60. I also favor giving everyone on Social Security a 20% raise. Much of this money will be spent and most of the money that is saved by higher income retirees will be taxed. By printing enough money to payoff most of the federal debt the U.S. will save $400 billion in interest from now to perpetuity. This will more than pay for the extra $300 billion it would take to fund the lowered age of eligibility.
ReplyDeleteThe issue of slowing the rate of inflation for healthcare does not change. We are simply moving much of the cost of providing healthcare for those aged 60 to 65 from the private sector to the public sector.
I think this will instill confidence in sectors of the economy that will spread to other sectors.
I detail this in my book How America Can Escape the New Great depression.