pageok
pageok
pageok
The right type of stimulus?

Recession fears have caused both President Bush and Congressional Democrats to call for an enormous stimulus package to give the economy a lift. The basic idea of most of our political leaders is a one-time tax cut that will put a relatively small amount of money in the hands of a lot of consumers (and, to be fair, maybe businesses too, depending on the proposal) to encourage them to go out and buy more DVD players, restaurant meals, movie tickets, and other small luxuries that no one really needs but might keep the economy limping along.

Assuming arguendo that a stimulus package is a good idea, why not use the money to invest in the country's crumbling infrastructure? It's no secret that our roads, bridges, and public transportation systems are falling apart, that we're behind much of the developed world in internet-age infrastructure like broadband and wireless capability. Investing in these types of things would not only provide lots of jobs here in the U.S., it would help promote future economic growth — something that won't happen if we give everyone $800 and tell them to go to the mall. In addition, or alternatively, we could invest some of the stimulus budget in homeland security improvements that have shamefully been ignored, such as protecting ports and chemical plants. This type of investment could help avoid future economic dislocations that would likely result from terrorist attacks by reducing the likelihood of such attacks.

I'm no macroeconomics expert, so I encourage those readers who are to explain if I am missing something important here. Do note, though, that I'm not taking a position on whether taxes are generally too high or too low, just on what is the best way to spend a one-time amount specifically designed to pump cash into the economy to (hopefully) ward off a recession.

Steve:
I think it depends on the recession and what is causing it. In the present environment, businesses are reluctant to get involved with new investments because of the credit crunch and the general atmosphere of uncertainty. So if you give money to consumers, they will go out and spend it, but the buck probably stops there.

I think it makes far more sense for the government to get directly involved in job creation, as with new infrastructure projects and the like. There's a time when you can simply give businesses extra cash and they can be counted on to create jobs with it, but not right now, I think.
1.19.2008 8:25pm
Lior:
Unless these "leaders" are planning to cut the cost of the government then this "tax cut" amounts to a collective loan taken by the taxpayers to finance current consumption. I'm not an economist, but this doesn't seem to be a good idea.

Investing in infrastructure is probably better, but unless you can get the loans in US dollars (that is, domestically) then the weak dollars makes loans right now would be very expensive.
1.19.2008 8:25pm
CrazyTrain (mail):
I'm with you Russell. Although, like you, I am no macroeconomics expert (though I studied it significantly in undergrad), this seems like a dumb idea. Also, won't giving money away also possibly cause inflation and/or have a negative effect on the dollar? I may be totally wrong on that, but for some reason I think it could cause some inflation.

Also, I would add that I think those of us who make well over 150K a year really shouldn't get this. It really ain't going to make any difference for us.
1.19.2008 8:29pm
SenatorX (mail):
So if you give money to consumers, they will go out and spend it, but the buck probably stops there.

They wont even do that. The money will more likely go to pay taxes or to pay down debt.

More federal spending is a given (and I think Lior is correct on one of the problems with that). It wont make much difference in the short or mid term though. For states and others, good luck selling your bonds when you don't have the AAA fig leaf anymore. It is really looking like there is going to have to a wipe out in order to rebalance this madness and let new clean companies pick up the pieces. Invest accordingly.
1.19.2008 8:38pm
Colin (mail):
Also, I would add that I think those of us who make well over 150K a year really shouldn't get this. It really ain't going to make any difference for us.

Not so. If we all got $800 in hundred-dollar bills, then we could light eight cigars in style.
1.19.2008 8:40pm
SenatorX (mail):
CrazyTrain, things are so messed up right now that even typical inflationary practices wont help. The enormous inverted pyramid of junk derivatives is collapsing and there is no way (though they will try) to re-inflate fast enough. Worse even if they can they cannot determine where the money will go once it gets into peoples hands and MUCH worse is that even if they can it would cause and even great bubble down the road (and a greater crash). Congress will talk (amazingly dumb talk lately I might add) and spend, the central banks will continue to jawbone fear of inflation, but in reality they have lost control.
1.19.2008 8:47pm
Perseus (mail):
1) To the extent that there are no government spending offsets and Ricardian Equivalence holds, the real economic effects will be muted. However, one of the assumptions of the neoclassical model is a perfect capital market, but the capital markets seem to have seized up at the moment, which would suggest that the tax cut would have greater real effects. A Neo-Keynesian would project even more significant real effects.

2) Unless the infrastructure projects are ready to be built right now (which they usually are not), the stimulus is likely to be felt too late to prevent (or do much to mitigate) a sharp slowdown/recession (unless it lasts for an extended period).
1.19.2008 9:09pm
mrshl (www):

2) Unless the infrastructure projects are ready to be built right now (which they usually are not), the stimulus is likely to be felt too late to prevent (or do much to mitigate) a sharp slowdown/recession (unless it lasts for an extended period).


I think this is the best argument against using sorely needed infrastructure improvements to jumpstart the economy. One way to address this might be to identify those projects that can be most quickly effected. for example, telecoms who were planning on a phased approach to bandwidth expansion could be tempted to accelerate that process with tax incentives or direct grants.

in reality, i don't think it would be all that easy to quickly identify crucial projects that are just lying around waiting for cash. and certainly such grants would be subject to capture.

meh.

i'm spending my $800 on an iPhone. :)
1.19.2008 9:18pm
SenatorX (mail):
The iPhone is cool and you will love it.

Another thing regarding economic stimulus is to realize it wont address some of the root problems. One of which is most of the financials are essentially bankrupt(as well as the states).

For those of your who would like to get your gloom on and see how bad things really look read a bit of this forum thread on Market Ticker

It really is not looking good...
1.19.2008 9:43pm
Nick J (mail):
Mark Thoma, who is an economist, agrees that the best way to use the stimulus money is for the government to spend it directly on infrastructure improvement.



Basically, he argues that past one-time tax rebates haven't effectively increased aggregate demand because only a small percent of people actually spend the rebates (most pay down debt or save). So instead of rebating $100 billion to get a $10-$20 billion effect on aggregate demand, he says we should invest the whole $100 billion in infrastructure improvement, which pretty well guarantees that the whole $100 billion affects aggregate demand.
1.19.2008 10:16pm
Nick J (mail):
Whoops, the link to the Thoma post apparently didn't work. Here it is (hopefully):

Mark Thoma on stimulus spending
1.19.2008 10:20pm
SPQR (mail) (www):
Any public works projects would not begin, nor have any economic effect, for at least 18 months given contract bidding timeframes, design time,etc. Most "infrastructure" projects would probably take even longer.

But the efficiency is debateable as mentioned.
1.19.2008 10:37pm
Eluchil:
The real reason for stimulus to take the form of tax cuts rather than spending is political rather than economic. However, there are plenty of economists who would argue that, in general, private citizens spend money more efficiently than the government. It is certainly faster, which is important given the lagged effects of fiscal stimulus.
1.19.2008 10:48pm
ChrisIowa (mail):

he argues that past one-time tax rebates haven't effectively increased aggregate demand because only a small percent of people actually spend the rebates (most pay down debt or save).


It does not matter whether the tax rebates are spent on goods or pay off bills or put in the bank. Whatever people do with the check it will add to GDP. If it goes into a bank, the bank can loan more. If you pay bills, the business will use it profitably. The only thing someone can do with the check that will not boost the economy is send it back.
1.19.2008 11:00pm
Mr. Liberal:
I think Russell Korobkin suggestion is extremely sensible.

One advantage of money directed at infrastructure, is that it will rather directly create construction jobs. This is especially useful, since the decline of housing prices have depressed construction employment.

Such stimulus also probably has higher benefits than tax rebate in terms of creating spending. The problem with a tax rebate is that people will often use it either to pay off debt or will save it (these are equivalent). But, when a person's status changes from unemployed to employed, you are guaranteed to get a bump in spending by that person, which will stimulate other sectors of the economy.

Finally, you get the longer term economic benefits of infrastructure improvements. The bridge collapse in Minnesota demonstrates quite clearly that we as a nation have been negligent when it comes to basic infrastructure. And as Korobkin has noted, to the extent that we protect infrastructure that could be the target of a terrorist attack, we protect our economy. People have a tendency to reaction irrationally to terrorists attacks (i.e. not flying after 9/11 was probably irrational, as the probability of another such successful attack was relatively low; it was still more dangerous to drive than to fly), so, besides the obvious humanitarian benefit, there is a large economic benefit in preventing such attacks.
1.19.2008 11:03pm
Mr. Liberal:

It does not matter whether the tax rebates are spent on goods or pay off bills or put in the bank. Whatever people do with the check it will add to GDP. If it goes into a bank, the bank can loan more. If you pay bills, the business will use it profitably. The only thing someone can do with the check that will not boost the economy is send it back.


While are very incorrect.

The fact is, we live in international economy. To the extent that more American's save, they will drive down interest rates. This will make investing in America less attractive to foreigners, who will then shift some of their investment overseas. The net effect is that decreases in interest rates due to increased savings will be shared with the rest of the world. Finally, any stimulus will result in increased deficits. Increased borrowing by the government will cancel out increased savings by private savings. Basically, stimulus that results in savings or paying down debt will have no positive effect whatsoever. You aren't going to get lower interest rates, since government borrowing will increase at least one dollar for every dollar of rebate saved.

In contrast, stimulus that creates jobs has a direct demand effect and can stimulate the economy and help prevent or ameliorate the coming recession.
1.19.2008 11:10pm
Mr. Liberal:

Any public works projects would not begin, nor have any economic effect, for at least 18 months given contract bidding timeframes, design time,etc. Most "infrastructure" projects would probably take even longer.


This isn't true. Their are many infrastructure projects already in the pipeline that are slowed down by lack of funds. You are thinking of only completely new infrastructure projects, not ongoing ones that could be accelerated with more money.
1.19.2008 11:13pm
Truth Seeker:
What pisses me off is the leftists who say a tax rebate isn't fair to poor and low income people who didn't pay taxes and won't get a rebate! Jeez....
1.19.2008 11:50pm
Truth Seeker:
By the way what happened when we got a $300 rebate a few years back? Did it have any effect? The results must be in by now.
1.19.2008 11:53pm
Mr. Liberal:
Truth Seeker,

I do not understand why criticizing a rebate not going to certain sectors of the economy more likely to spend is so outrageous to you.

This isn't meant to be a tax cut. It is meant to be temporary stimulus to prevent or ameliorate the coming recession.
1.19.2008 11:56pm
SenatorX (mail):
Mr. Liberal are you ever right about anything? I mean really! Of course you think the government should step in and save the day. When have you ever thought differently? The comming recession? LMAO

Sure lets have the gov start giant infrastructure projects. It, umm , worked for Japan...
1.20.2008 12:03am
Lev:

The bridge collapse in Minnesota demonstrates quite clearly that we as a nation have been negligent when it comes to basic infrastructure.


The bridge collapse in Minnesota demonstrates quite clearly what happens when a bridge has a design flaw, namely gusset plates of the wrong, too small, size.

And how much did Minnesota political entities spend on bicycle paths instead of Interstate bridge inspection and repair?
1.20.2008 12:05am
Lev:
Instead of public works pork in a campaign year, why not allow businesses to accelerate depreciation and to expense instead of depreciate.
1.20.2008 12:07am
Mr. Liberal:
Truthseeker asks,


By the way what happened when we got a $300 rebate a few years back? Did it have any effect? The results must be in by now.


According to conservative economist Bruce Bartlett in this article in the WSJ, the answer was that those tax rebates were pretty worthless:


To his credit, Treasury Secretary Paul O'Neill cautioned against the rebate. "I was here when we tried that in 1975, and it just didn't work," he said. "If we want to change consumption patterns, we need to make permanent changes in peoples' tax burdens." But President George W. Bush overruled his Treasury secretary and approved the rebate idea. Checks of $300 to $600 per taxpayer were sent out in the late summer. Contemporaneous polls by Gallup, Bloomberg and the University of Michigan all found that the vast bulk of consumers expected to save the money or use it to pay bills. Subsequent studies confirmed these forecasts.

In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political -- giving politicians a way of appearing to be doing something about the nation's economic problems that is superficially plausible.


I highly recommend you read the whole article. In fact, such rebates were also pretty useless in 1975, as Milton Friedman predicted.

Now, I should note that I strongly disagree with Bruce Bartlett's point, that people will behave in a radically different way if tax cuts are said to be "permanent." (No tax cut is truly permanent. A change in political conditions can always result in a change in tax rates.)

But, I agree with his conclusion and the previous empirical evidence on this matter. Such tax rebates are largely ineffective because people save or pay down debt with too much of it.
1.20.2008 12:10am
Mr. Liberal:

The bridge collapse in Minnesota demonstrates quite clearly what happens when a bridge has a design flaw, namely gusset plates of the wrong, too small, size.


And design flaws in turn are related to how much we spend on checking and re-checking designs to ensure safety. =)

Now, I am not going to say that any amount of money can eliminate all risk. But, I will say, that spending more money on re-examining design can lower risk.
1.20.2008 12:13am
Mr. Liberal:

Mr. Liberal are you ever right about anything? I mean really! Of course you think the government should step in and save the day. When have you ever thought differently? The comming recession? LMAO

Sure lets have the gov start giant infrastructure projects. It, umm , worked for Japan..


Try as I might, I do not actually detect an actual argument in this vitriol.

You are wrong. Because I said so!

Well, nice try. =)
1.20.2008 12:14am
fishbane (mail):
Well, this just comes full circle.

No, direct rebates can't steer the economy. Didn't when Bush did it, won't now.

Actually, I almost like the idea of putting it in infrastructure - we're too far gone now to really roll any of that back, and little details like collapsing bridges and cities being flooded and whatnot, well, are bad for business.

My prediction is that the money is going to go to those Too Big To Fail. Advice from an anonymous guy, who is not an investment advisor, lawyer, or otherwise papered fellow: invest in European security funds, especially those who have experience with what used to be called "emerging markets".
1.20.2008 12:18am
Mr. Liberal:

Instead of public works pork in a campaign year, why not allow businesses to accelerate depreciation and to expense instead of depreciate.


This might not be a bad idea. Except, no acceleration should be allowed for existing assets, only new purchases. (And, let them write off old assets that are replaced.)

To allow greater acceleration on existing assets just provides a windfall, and does not provide as much stimulus as we would get if we concentrated on more narrow tax incentives in this area that rewarded new investment without providing unexpected windfalls for old investment.

It would make sense to do both this and provide greater investment in infrastructure. As I noted earlier, providing employment for unemployed construction workers is sure to result in increased spending while providing long-term economic benefits.
1.20.2008 12:22am
American Psikhushka (mail) (www):
Mr. Liberal-

Try as I might, I do not actually detect an actual argument in this vitriol.

You are wrong. Because I said so!


No, he gave the example of Japan. They tried to simulate the economy with public works projects on a large scale and it didn't work. I seem to remember some statistic that they were using more concrete than all of the states combined, or something like that.

Well, nice try. =)

It was. He proved you wrong in a small number of words with minimal effort.
1.20.2008 12:23am
Paul Allen:
Robert Rubin's rule comes into play here: government deficits crowd out private borrowing. The linchpin of the recession is the ongoing liquidity crunch. The Fed has responded by stimulating bank's reserves, so the symbiotic action on the part of government is to stop draining down the available credit. This would allow the natural rate of interest to decline which will stimulate investment. Proposals for tax rebates or further spending are thus backwards.
1.20.2008 12:24am
Brian K (mail):
Tyler Cowen's post here links to a research report that reached this conclusion about the 2001 tax rebate: "this paper finds that only 22 percent of households receiving the rebate would spent it"
1.20.2008 12:25am
Mr. Liberal:
Paul Allen,

You are absolutely right, but only in the long-run. We need to get our fiscal house in order, which has been destroyed by Bush's irresponsible tax cuts unaccompanied by corresponding cuts in spending.

But, in the short-term, we need to avoid or ameliorate recession and lower the unemployment rate. The deeper any recession is will definitely lower government revenues, which will make the deficit worse, not better.

You are absolutely right, we need to get the deficit under control over a somewhat longer time frame. Bush and the Republican Senate and Republican House have been an unmitigated disaster for our fiscal health.

Bush = Large Tax Cuts + Large Spending Increases = Big Budget Deficits.

But what do you expect from Bush. I sometimes suspect that he has an IQ below 100. Of course, it should be recalled that Congressional Republicans, presumably many of whom are significantly smarter than Bush, have also been complicit.
1.20.2008 12:30am
ChrisIowa (mail):

By the way what happened when we got a $300 rebate a few years back? Did it have any effect? The results must be in by now.


Following are the Inflation adjusted and seasonally adjusted changes in GDP during the last recession:
2000q1 1.01%
2000q2 6.28%
2000q3 -0.46%
2000q4 2.08%
2001q1 -0.49%
2001q2 1.23%
2001q3 -1.41%
2001q4 1.58%
2002q1 2.72%
2002q2 2.18%
2002q3 2.36%
2002q4 0.20%

Note that Bush took Office in 2001q1, the tax refunds were passed in the spring and the $330 checks were sent in August (2001q3), which also included 9/11.

The tax refund checks seem to have cut the recession off, but did not stimulate the economy enough that growth was robust. That did not happen until the second set of tax cuts took effect in 2003.
1.20.2008 12:31am
Mr. Liberal:
American Psikhushka,

So, it is your position than one word, "Japan" constitutes an argument.

And conservatives wonder why most academics are liberal. Its because conservatives are... =) (I'm not going to say it.)

See, an intelligent individual would realize that it is not an argument to merely say the word "Japan." They would realize that you have explain how Japan's situation was similar enough to ours and explain why the differences do not matter. And one would also have to explain how similar, but differently structured policies, would not have different results. Basically, an intelligent person would realize that such comparisons are actually quite complicated.

That you think SenatorX has "proved" anything is not a good sign. =)
1.20.2008 12:38am
Mr. Liberal:
ChrisIowa,

Do you really believe that the rebate checks are the only thing that might have an effect on growth in each quarter? Do you really believe your list of numbers isolates the impact of rebate checks compared to other factors?
1.20.2008 12:41am
ChrisIowa (mail):

But, in the short-term, we need to avoid or ameliorate recession and lower the unemployment rate. The deeper any recession is will definitely lower government revenues, which will make the deficit worse, not better.

You are absolutely right, we need to get the deficit under control over a somewhat longer time frame. Bush and the Republican Senate and Republican House have been an unmitigated disaster for our fiscal health.


The unemployment rate is currently "up" to 5% which is less than it was when Clinton was President. In the 1960's the dream was to get that low.

An economic downturn has never been the time to attempt to get the deficit down. Except when your a Democrat and there's a Republican President.
1.20.2008 12:47am
Mr. Liberal:

An economic downturn has never been the time to attempt to get the deficit down. Except when your a Democrat and there's a Republican President.


I said over a long time frame. =)

We do need to get our deficit down, in the long run. I agree with you that this should not be our priority right now.

On the other hand, we should not needlessly increase our deficits with tax rebates that will not work.
1.20.2008 12:51am
American Psikhushka (mail) (www):
Mr. Liberal-

And conservatives wonder why most academics are liberal. Its because conservatives are... =) (I'm not going to say it.)

It's largely because academia is self-selecting, self-perpetuating, and very intolerant of non-liberal arguments and theories. Also a large number of conservatives and others aren't interested in academia, to a large degree because of all the liberals there. And note that I'm not conservative.

See, an intelligent individual would realize that it is not an argument to merely say the word "Japan." They would realize that you have explain how Japan's situation was similar enough to ours and explain why the differences do not matter.

This coming from the king of "libertarians are bad because I said so". Japan is frequently cited as an example of why using public works to simulate the economy doesn't work very well, especially in anything other than the very short term. If you weren't familiar with this you could have asked, as I frequently have to ask for examples of why "libertarians are bad because you say so".
1.20.2008 12:59am
Mr. Liberal:
As this image illustrates, unemployment actually went below 4% in the latter part of the decade of the 1960s. Further, unemployment steadily decreased during the Clinton administration, nearly reaching 4% before increasing after Bush took office.

This statement:

The unemployment rate is currently "up" to 5% which is less than it was when Clinton was President. In the 1960's the dream was to get that low.


I don't understand why you make assertions like this, when the falsity of such statements is so easily revealed.
1.20.2008 1:01am
SenatorX (mail):
I proved you are vastly ignorant of economic realities. I suspect your real problem though is a psychological one. Something that makes you always look to authority perhaps combined with a certain self-loathing. The socialist philosophy seems to attract this type and everything you read or see will get put through this filter. Logic and critical thinking don't mean a thing for you. What you don't want to see, you simple don't see.

The word recession and the fear of one is a great example. You can tell a lot about a person on how they view a recession. Oh yes let us all be afraid of it. It must be "prevented or ameliorated" at all costs! Utterly false from the very start. But you all all ready to run with it. Why? Because the solutions is government stepping in to affect the masses and hopping on that train is one of your power kicks. Choo choo! Children are crying and something must be done!
1.20.2008 1:04am
ChrisIowa (mail):

Do you really believe that the rebate checks are the only thing that might have an effect on growth in each quarter? Do you really believe your list of numbers isolates the impact of rebate checks compared to other factors?



Other stuff was going on, but other stuff was continuously going on before and after. The two things that were really different economically in 2001q3 that was not there previously were the rebate check distribution and 9/11. I don't think the collapse of the transportation industry in September and October could be considered an economic stimulus, so I'll attribute the improvement to the tax rebate checks.

If you recall, the stock markets were continuously falling at the time do to the end of the dotcom bubble in March 2000 and something needed to be done to stop the downturn in the economy that resulted.

Evidently you don't have an alternate explanation or you would have mentioned it.
1.20.2008 1:05am
Mr. Liberal:
American Psikhushka,

I expect you to retract the statement that SenatorX has "proved" anything.

Otherwise, your full of shit. =)
1.20.2008 1:05am
Mr. Liberal:
SenatorX,

Unless you actually have something substantive to say, do not expect a response from me. =)
1.20.2008 1:16am
SenatorX (mail):
You know what really chaps me about where we are and where we are going? That IMO its government meddling that got us here. You can look at the socialist practices of the mortgage GSEs, to the pushing of an "ownership society", to the fed manipulation, or even to the basically fascist business model we employ in regards to lobbying and the revolving door of government positions/CEO. But the kicker that makes me hot is that the mess is going to be sold to the people as a problem with LACK of government control and regulation. The "free market" will be blamed for what it is not and the proposed answer will be more socialism.
1.20.2008 1:17am
Nick J (mail):

It does not matter whether the tax rebates are spent on goods or pay off bills or put in the bank. Whatever people do with the check it will add to GDP. If it goes into a bank, the bank can loan more. If you pay bills, the business will use it profitably. The only thing someone can do with the check that will not boost the economy is send it back.


It absolutely matters what the tax rebates are spent on. The goal of an economic stimulus package is to increase aggregate demand, which is the total demand for final goods and services in an economy. Aggregate demand is not GDP.

For example, if people put the rebates in the bank, the bank might lend the money to a business that will not spend it in a way that affects aggregate demand (such as investment in surplus inventory due to a lack of consumer demand). Plus, the bank charges interest on that loan, so the amount paid in interest doesn't affect aggregate demand either. The loan may eventually add to GDP, but that's not the point of economic stimulus. The point of an economic stimulus package is to increase aggregate demand, so we need to make sure that the tax rebates are spent on final goods and services rather than surplus inventory investment and interest rates.
1.20.2008 1:18am
SenatorX (mail):
I'm sorry Mr. Liberal were you saying something about large scale government works fixing a solvency problem after an inflationary boom? We are in a much worse position than Japan was and the solutions you are fond of will make matters worse, not better. Unfortunately it's almost a given that it will be attempted so you will get your way. By the time it fails you will find something else to blame I am sure. Maybe everybody didn't chip in enough or something.
1.20.2008 1:24am
PETN Sandwich (mail):
Many angels dancing on the head of a pin here - with this 'rebate' will the Fed spend more than they take in?

.
.
.

If 'No' - even with the one-time rebate this years spending balanced, then this is a good thing, thank you Martha Stewart. Every year we should enjoy a rebate because the Fed went under budget.

If 'Yes' - (as always) then the Fed fired up the printing presses and cranked out a couple of hundred billion dollars of greenbacks and dumped them on the streets, only to be paid back, maybe, later. Except this time the Fed was wise enough to realize that it cost more to print eight Hundred-Spots, special paper and all, than to print a check on plain paper, stuff it into an envelope, and mail it to John Doe. Just "saved" a few mil right there. Got to give to them if this is the case - cutting fiat checks on fiat money! WOW! Bold economic initiative!

.
.
.

On the "plus" side of cranking up the ol' printing press - further devalues currency making foreign investment in the USA more attractive - foreign investors can trade their imaginary money for the US imaginary money at a better (for them) conversion rate and buy shiite with real tangible value, like land and corporations with physical assets.

/just being cynical - the world is really full of fuzzy pink bunnies and those lovable unicorn flying horse things...
1.20.2008 1:37am
SenatorX (mail):
Does anyone really think that even if the "check in the mail" concept worked perfectly and everyone ran out and spent the money on goods that it would make any sort of difference? It would be fairly easy to accomplish via government gift cards or something. It just wouldnt work. What you are going to jump start the economy? It's a great visual but it doesnt work like that.
1.20.2008 1:37am
Nick J (mail):

If you recall, the stock markets were continuously falling at the time do to the end of the dotcom bubble in March 2000 and something needed to be done to stop the downturn in the economy that resulted.

Evidently you don't have an alternate explanation or you would have mentioned it.


Um, how about the Fed cutting rates from 6.5% to 1.75% in a single year? That was a much bigger deal than the $300 rebate checks, which, as economist Bruce Bartlett explained today in the WSJ, didn't work at all:

"Checks of $300 to $600 per taxpayer were sent out in the late summer. Contemporaneous polls by Gallup, Bloomberg and the University of Michigan all found that the vast bulk of consumers expected to save the money or use it to pay bills. Subsequent studies confirmed these forecasts.

"In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political — giving politicians a way of appearing to be doing something about the nation's economic problems that is superficially plausible."
1.20.2008 1:44am
Truth Seeker:
I do not understand why criticizing a rebate not going to certain sectors of the economy more likely to spend is so outrageous to you.

If it goes to people who didn't pay it, then it is not a rebate, it is charity, welfare, a gift, theft from those who earn to those who don't, or whatever, but it is not a rebate. If they paid no taxes, they get no rebate.
1.20.2008 1:55am
Just a Nut (mail):
The stimulus represents what everyone recognizes as a Keynesian stimulus all the while Keynes is being reviled. The better course is to take into account Milton Friedman's observation that one time dollops do not matter--it is sustained income expectations that influence spending.
The government has delivered economic growth by increasing spending sharply be it by way of the war abroad or the war on terror at home.
At this point, the current crisis has roots not in insufficient spending but in dearth of administration which has led to the proliferation of pyramid schemes, aka bubbles. The most recent one is due to the debt-swap derivative agreements for allocating risks that are not treated as securities and have no central clearance mechanism. Establishing a clearance mechanism requires information and more importantly, regulations. Promulgating regulations runs counter to the philosphy in control even when it is cost effective to implement a solution by way of regulations. Thus, the stimulus is a solution that was already in place. The additional money would be better spent in regulating the marketplace to ensure liquidity freezeups do not happen again and derivative contracts can be handled safely with recourse for investors.
Tellingly, Warren Buffett unwound such risk swaps when he revamped the reinsurance business of General Re. Reportedly it took four years. He is no dummy and realized the extreme risk posed by such unregulated contracts. The economy would be best stimulated by making it safe (protection against fraud and by imposing duties of disclosure) to trade in derivatives. This is not on the table so I do not believe any good is going to come of this. It is just throwing good money after bad.
1.20.2008 1:58am
Truth Seeker:
Tellingly, Warren Buffett...

When Warren Buffett went on record saying that we need a death tax and he supports it, and then set up his estate to avoid the death tax I realized that while he is successful making money, he is dishonest and not someone to be proud of. Of course, only the 'little people' pay taxes...
1.20.2008 2:19am
Cro (mail):
First of all, we're limiting ourselves to fiscal policy and not monetary policy (Which is mostly the Fed raising and lowering interest rates and the money supply).

If all you care about is economic stimulation, the absolute best way to do it is to permanently lower the highest marginal tax rate. Giving a poor person $500 to spend does not increase consumption as much as giving a rich person $10,000. Money does not care if the person spending it is rich or poor. You can't give back money you didn't tax (well, unless you include tax credits... but that's another story). Yes, this is disproportiately benefiting the better-off. That's because they have already paid more taxes for the government to give back. Whether that's fair or not is up to your ideology. But on the narrow question of economic stimulus, there's no doubt that it works.

A one-time payment does almost nothing. People don't permanently change their spending habits. Usually, rebates just go to paying debt or savings (think of what you do with windfalls. Do you immediately go spend it all?) You want people to be able to plan ahead with their spending. By permanently lowering the rate (well, until the Democrats raise it again...) you let people change their spending habits. In effect, you give them a pay raise. What will stimulate the economy more? The Christmas bonus or a pay raise?

Failing that, any tax cut will help. Failing even that, public works and other Keynsian spending programs will help a little bit, but recent experience in Europe and Japan has been disappointing. What tends to happen is that additional government spending is dwarfed by the size of the economy being stimulated. When most government revenue is already spoken for (in our case, mostly going to entitlements like Social Security, Medicare, and Medicaid) the amount left for the government to play with is small beans.

Keynsian and supply-side economics agree that raising taxes during a recession is a bad idea. Both agree that tax cuts are a good idea in that circumstance. Keynsian economics calls for tax cuts and deficit spending in order to put the maximum amount into the economy. Oddly enough, that's exactly what the supposed supply-sider Ronald Reagan did during his presidency.
1.20.2008 2:44am
American Psikhushka (mail) (www):
Mr. Liberal-

I expect you to retract the statement that SenatorX has "proved" anything.

Otherwise, your full of shit. =)


No, SenatorX pointed out that large public works projects aren't effective at stimulating the economy out of an economic downturn and cited Japan as an example. When you show us that the example is wrong and that it would somehow work in the current US situation then I'll consider the notion that I may be wrong, mistaken, etc.
1.20.2008 7:19am
JOe:
Mr. Liberal-

I expect you to retract the statement that SenatorX has "proved" anything.

Otherwise, your full of shit. =)

No, SenatorX pointed out that large public works projects aren't effective at stimulating the economy out of an economic downturn and cited Japan as an example. When you show us that the example is wrong and that it would somehow work in the current US situation then I'll consider the notion that I may be wrong, mistaken, etc.


A good example of the public works projects on the economy is the impact of the WPA projects during the great depression. Overall, those projects had little impact on the economy and delayed the natural &normal return to a healthy economy.
1.20.2008 9:49am
JOe:
To stimulate or not to stimulate -- Or how to stimulate

Is the call for economic stimulus premature and is it just an over reaction to warnings of a recession by some groups? Is this a down turn in the economy toward a deep recession or simply a cooling of the growth -- a possibly a return to normal levels of growth?

It would seem that President Bush's request for a stimulus package is simply a political reaction to the claims of a looming recession.

Granted certain sectors of the economy are experiencing slow downs, but other factors such as unemployment suggest an economy (in this so called start of a recession) is as strong or strongly the previous stages of economic growth experienced over the last 20 years. We've had 4-5 years of solid growth -- it is natural for the economy to slow.

Giving a rebate, which typically doesn't work, would at best be like giving a kid a sugar high. Modifications in the tax structure have generally proven to have the best long term benefit. We are currently twenty five years into a long term economic upswing which started with the overall lowing of the tax rates beginning in the early 80's. While there is much to quibble about specific tax provisions enacted over last 25 years, the overall lowing or rates have helped create an environment conducive to economic growth.

Currently, the biggest short coming in tax policy is the overall rate of taxation on labor remains too high, averaging 30 -- 40% overall (not marginal) with earning from labor as low as $50k (income and payroll taxes)
1.20.2008 10:16am
JimSaco (mail):
Temporary tax cuts are pointless. They change no one's incentives. It's just taking money from elsewhere in the system (either our creditors the ChiComs and the Saudis, or printed money) and giving it to people.

I am afraid Judgment Day is near. We created a huge credit bubble over a long period, and it needs to be unwound. The longer the unwinding is delayed, the more painful it will be.
1.20.2008 10:31am
Steve2:

A good example of the public works projects on the economy is the impact of the WPA projects during the great depression. Overall, those projects had little impact on the economy and delayed the natural &normal return to a healthy economy.


Can the same be said of the public works projects of the PWA and (especially) the TVA? For that matter, what about FAHA '56? That was a pretty massive public works funding law, and by most accounts its long-term impact on the U.S. economy was significant.

Oh, somebody mentioned Minneapolis and whether money that Minnesota or local authorities spent on building bike paths should have been spent on bridge inspection. The localized answer is "no", since in large part that would've meant defrauding the feds. The last several rounds of transportation funding laws Congress has passed (ISTEA, TEA-21, and SAFETEA-LU at least, going back to the early '90s) have allocated funds by type. The Twin Cities and Mn/DOT have been particularly successful in getting federal grants from the Transit, CM/AQ, and Nonmotorized pools, but those pools can only be used for their designated purposes. Of course, you can argue that Congress shouldn't have allocated as much funding to those categories, and more to the Bridges program or something, and arrive at an answer of "yes" that way. Although I don't know how much good that would've done, since until SAFETEA-LU in 2005, the Bridges funding was generally limited to new construction or "emergency" repair, not routine preventative maintenance.
1.20.2008 10:46am
markm (mail):
Herbert Hoover tried spending our way out of an economic downturn by large public works. It failed. His successor vastly multiplied the public works program, and the Depression deepened and continued for ten years.

"The better course is to take into account Milton Friedman's observation that one time dollops do not matter--it is sustained income expectations that influence spending." Public works are such a one-time dollop. All construction jobs are explicitly temporary. A wise construction worker (although possibly not the typical one) will spend only what he must to live from current income, and only buy luxuries from his savings from the last job when he has been hired onto a new job. In addition, many of the 1930's public works were in isolated areas, giving the workers little chance to spend their money on anything more constructive than booze, gambling, and hookers. Las Vegas managed to turn Boulder Dam construction workers' spare cash into a sustainable business from vice, but nearly everywhere else large construction camps have left behind whole streets of boarded-up dives.

I don't know about the thirties, but at present you don't get many construction jobs per million dollars spent, especially on government projects (where union pay is mandated even for non-union contractors, and government rules are even more restrictive than union rules). Workers get high pay when they are working, and materials and equipment also come high. The result is that we pay a lot for relatively few jobs created. It's quite likely that the government borrowing to finance the projects would cut into financing available for private business and homebuilding, costing far more jobs than are created. (Of course, this depends on whether the lenders have enough faith in private borrowers to lend to them in the first place...)

We do need to catch up on infrastructure repairs and improvements. I just doubt that in the middle of a recession is a good time to step up this spending. Reducing the government footprint in the economy seems like a much better plan to me.
1.20.2008 10:51am
JRL:

You know what really chaps me about where we are and where we are going? That IMO its government meddling that got us here. You can look at the socialist practices of the mortgage GSEs, to the pushing of an "ownership society", to the fed manipulation, or even to the basically fascist business model we employ in regards to lobbying and the revolving door of government positions/CEO. But the kicker that makes me hot is that the mess is going to be sold to the people as a problem with LACK of government control and regulation. The "free market" will be blamed for what it is not and the proposed answer will be more socialism.


At least someone here gets it. Almost the entirety of our current economic issues are caused by the beatification of Alan Greenspan, and our reliance upon him and his successor to control our economy.

The government should no more be setting the price for money than it should be setting the price for cheese.
1.20.2008 10:58am
Crimso:

And conservatives wonder why most academics are liberal.

Survey a typical science or engineering department, and then a typical English or women's studies department. I suspect you would be very, very, very, very hard-pressed to find someone in the latter that consider themselves conservative, but likely to find at least someone in the former who does. Which of these two groups is better known for critical thinking and problem-solving skills?
1.20.2008 11:42am
Bruce Hayden (mail) (www):
Why stimulate in the first place? Recessions are really a necessary rationalization of the economy. Elements of production, such as capital and labor, need to be periodically reallocated for long term economic growth. Besides, people are worried about jobs now despite that the economy is considered by past measures to be above full employment.

As noted, even if public works programs of the types suggested by Mr. Liberal were to work, and it is highly questionable whether they ever have, the problem is that they are not going to hit until after the recession has bottomed out and the economy has started back up. Liberal's suggestion that just those projects that are well along the way be funded ignores the reality of how such projects are funded and executed. Because of the lag for fiscal stimulus efforts like public works projects, they tend to be counter-productive since they tend to hit when least needed, and often when the labor market has already tightened up.

Slashing the discount rate by the Fed ignores how monetary stimulus works. Remember, this isn't the real long term cost of money, but rather, just the marginal cost, which is why small cuts have some small effects, but a large cut won't have much more. And, you don't want a big effect from monetary policy anyway. A good part of why the Carter stagflation occurred was that the Fed was concentrating on interest rates, and was pushing up the money supply to get reductions in interest rates, but inflation (P) is tightly coupled to money supply (M) (remember MV=PQ), and inflation was driving up the interest rates, that the Fed was trying to bring down through more money, etc.
1.20.2008 12:28pm
JOe:
And conservatives wonder why most academics are liberal.


Survey a typical science or engineering department, and then a typical English or women's studies department. I suspect you would be very, very, very, very hard-pressed to find someone in the latter that consider themselves conservative, but likely to find at least someone in the former who does. Which of these two groups is better known for critical thinking and problem-solving skills?

Individuals that can do - the others teach
1.20.2008 12:29pm
Crimso:

Individuals that can do - the others teach

Having done both (in both science and engineering), I can attest to the lack of truth in that statement (though it has always been a good joke). I have found teaching at a university to be a much more trying experience than working at GE. This is primarily due to the fact that academia puts up with far more nonsense from its members than industry, for what I think are a variety of reasons. As far as Ph.D.'s in English, women's studies, etc., at least in science and engineering there are options other than teaching. BTW, if you'd told me 20 yrs ago (when I got my B.S.) that I would be teaching today, I'd have laughed and said what you did.
1.20.2008 12:58pm
roystgnr (mail):
Does anyone really think that even if the "check in the mail" concept worked perfectly and everyone ran out and spent the money on goods that it would make any sort of difference?

It won't make any real difference to the economy, of course. If I want to borrow $800, I don't have to wait for the government to tack that debt onto their $9 trillion, I can go get a loan right now.

But consider the value that a short-term meaningless rebate can have, not to the economic present, but to our artistic legacy. That $300 may have been just a drop in the irresponsible fiscal policy bucket, but long after inflation and overvaluation bubbles have been forgotten, our remote descendants will still be able to enjoy the Tricky-Dick Fun Bill it inspired.
1.20.2008 12:59pm
DeezRightWingNutz:

Usually, rebates just go to paying debt or savings (think of what you do with windfalls. Do you immediately go spend it all?)


Actually, yes. Often many times over. I can afford this, I just got that bonus. I can afford this, I just got the bonus. I keep saying it until I've spent the bonus twice. And I'm surprised to see the results of the UofM study (according to Bartlett), because I thought pretty much everyone treated "found money" differently than earned money. Just go to a gammbling for examples.
1.20.2008 12:59pm
DeezRightWingNutz:
Sorry for the last sentence, apparently, you can't say casin0, and I didn't edit the sentence correctly after my post was rejected.
1.20.2008 1:00pm
Jmaie (mail):
Oh, somebody mentioned Minneapolis and whether money that Minnesota or local authorities spent on building bike paths should have been spent on bridge inspection. The localized answer is "no", since in large part that would've meant defrauding the feds.

The federal government takes $1.00 in revenue from MN taxpayers. They send $0.79 (or whatever the actual percentage is) back to MN, keeping the balance for overhead. They further mandate a part of the amount returned be spent on bike paths, public art, etc.

Seems like MN taxpayers would be better off keeping the whole dollar.

And design flaws in turn are related to how much we spend on checking and re-checking designs to ensure safety.

It would be nice if most design flaws were found due to inspections. Unfortunately they are usually discovered after an incident.

Giving a rebate, which typically doesn't work, would at best be like giving a kid a sugar high.

Sugared-up kids that vote.
1.20.2008 1:05pm
JBL:
Neither a fiscal stimulus nor the rate cuts will do anything to address the underlying issues. Probably, all they will do is delay the recovery. There is a chance that the rate cuts will prevent the ills from spreading further, but I'm not convinced.

Public works may or may not be a good idea - they need to be evaluated based on their intrinsic long-term merits. Although an economic downturn may be a good time to start them, they do not independently provide effective short-term stimulus.

By far the biggest thing government can do to improve (or retard) the economy is to provide a coherent and consistent tax and regulatory environment. One can endlessly debate the various notions of "coherent", but we won't have a perception of consistency until after the election at the earliest.

The current troubles will not unwind until at least 2009 no matter what anybody does.

The liquidity crunch, individual spending, and employment are strongly tied to the housing market. The economy can't get back to healthy until the basic housing supply and demand are back in balance. There is therefore exactly one thing the government could do that would make a difference. That is to significantly increase fundamental housing demand. In other words, open immigration.

Open immigration is the only way to quickly rebalance the housing market, but it would have other effects which (good or evil) would probably take at least a year to stabilize.
1.20.2008 1:24pm
Steve2:

Survey a typical science or engineering department, and then a typical English or women's studies department. I suspect you would be very, very, very, very hard-pressed to find someone in the latter that consider themselves conservative, but likely to find at least someone in the former who does. Which of these two groups is better known for critical thinking and problem-solving skills?


I don't know which bothers me more - the implication that I'm not both liberal and an engineer, or the implication that women's studies isn't a field of critical thinking.
1.20.2008 1:31pm
Just a Nut (mail):
It is not really the housing market per se that is the problem. It is the facility for hiding uncomfortable realities by use of otherwise useful instruments like derivatives. Sort of like the era of bank issued currency. For good reason, now only the Federal Government issues the basic dollars. The buck, however, can stop with a minor entity in the case of derivative. In other words, the transaction costs are too high and incentives for fraud based on hiding the ball great. We need a more reliable centralized clearing scheme for swap contracts, some of which have hundred year terms, so that problems do not pop up years later with no way to settle.
There is no good business reason for forming such contracts except to defraud and manipulate. They, tellingly are not even traded publicly, which coupled with official blind spots, makes the problem worse. We need to solve real problems and if settling swaps need a one time bailout, so be it. The current stimulus is a solution to some other problem--it is not a solution to the current lack of liquidity. And, while at it, better (honest?) appraisals will also help.
1.20.2008 1:43pm
TedM (mail):
I have not read all the comments, so this might be redundant.
remember the Investment Tax Credit of past years? A program
of tax credits for purchases of 1. energy savings appliances. 2. hybrid autos. 3. solar devices. 4. other
items as you think of them

A tax credit of say 10% on the purchase of a $30000 hybrid costs the treasury $3000, 30K is pumped into the economy.
you get more bang for the buck. Same for appliances, etc.

A direct tax rebate of some amount is a political necessity.
You can't "help the rich" without helping the "poor". Same goes for increasing food stamps.

Accelerated write-offs for targeted business investments
which would end on 12.31.2008 would also bring about economic
stimulus. Pick your own tagets.
1.20.2008 2:25pm
seadrive:
Dealing with an economist is like dealing with a nagging mother. If you work on one problem, she'll nag you about a different one. If you try to fix the thing she complained about yesterday, she'll say the thing she's nagging about today is way more important.

So yesterday, Americans weren't saving enough, but, today, if you give a man $100, he's supposed to spend it rather than paying down his Visa bill.

Anyway, the surest way to get some money spent is to give it to someone with bills in excess of income, e.g. someone who just lost his job.
1.20.2008 2:43pm
Crimso:

I don't know which bothers me more - the implication that I'm not both liberal and an engineer

No such implication. I said "find at least someone," not everyone (by a longshot).


implication that women's studies isn't a field of critical thinking.

In my experience, it's usually not. You being a self-professed liberal, it doesn't surprise me that you have the opposite opinion. The great majority of what I see coming from such "studies" departments seems to be unintelligible, po-mo drivel. YMMV.
1.20.2008 2:45pm
Kazinski:
For those opining that the problem with the economy is that government deficits are crowding out private investment take a look at this table of the deficit as a % of GDP:

2005............ -2.6
2006............ -1.9
2007 estimate... -1.8
2008 estimate... -1.6
2009 estimate... -1.2


The long term average over the last 40 years is -2.4%. So I don't think the problem is that the deficit is over large.
1.20.2008 3:23pm
gattsuru (mail) (www):
I can't say much about economic policy. However, as a CCNP, I can say a good deal about technical issues.

that we're behind much of the developed world in internet-age infrastructure like broadband and wireless capability


I've seen a lot of people say this, but they tend to fall in one of three faults: not understanding the technology, not understanding the actual numbers involved, or having a major personal bias getting in the way.

(Aside: units below will be in bits, megabits, or gigabits. Like the units used to advertise 56Kb telephone modems, this is a technical specification for the number of meaningful signal changes that can be translated to 0 or 1 values, not what the user sees when trying to download files. Strictly speaking, there are 8 bits (lower case b) to the byte (upper case B), but this is a practical measurement and not a standardized one.)

First and foremost, broadband density in the United States is not exactly low. Three out of four American households have internet access, and two out of four have broadband capabilities at home. This is better than the [url=http://www.websiteoptimization.com/bw/0611/]Japanese numbers[/url], although it's important to remember that cultural distinctions have made it more important for Americans than the Japanese to individually have bandwidth of his or her own.

Secondly, a lot of the commonly named numbers are a little misleading. It's very interesting that a Japanese household can get a 100 Mb/sec connection for fifty bucks a month, but when their service operator only has 20 gigabits/sec of outbound connection to the major backbone open for thousands of simultaneous users. The branches of a tree can only be as large as the trunk in a routing environment : the above solution will have that 100 Mb/sec fiber line acting like a cable modem. When they try to strap that through a beatup Cisco 2800, it's just not going to work.

Finally, remember that the United States are [i]big[/i]. Really, really big. The way nearly all communication methods works makes that a problem : increasing distance causes a significant and direct decrease in maximum communication speeds. Modern single-mode fiber with good multiplexing can send a dozen terabits per second over 160 Km, but going further than that results in drastic decreases in speed.
You can cover most of Kyushu Prefecture, one of the more sparsely populated parts of Japan, with a couple of those above connections. Covering the same sort of population with the same distance of cable in the United States would limit you to only the most populated areas.

There's a reason for the massive amounts of dark fiber laying around, and it isn't just because of WDM. Laying that wire was a good 60% of the price of bringing the network up, but you don't see it happening much on the farther legs. The simple truth is that a lot of the United States can't support the cost of maintaining these networks -- the demand for broadband access isn't that high.
1.20.2008 3:45pm
Jamesaust (mail):
"why not use the money to invest in the country's crumbling infrastructure?"

Well, because it is not possible to instantly invest such money sufficient to stimulate the whole economy. Its a throughput issue (imagine trying to force excess quantity through a narrow pipe). Over time, sure, the economy can absorb such massive investment. But by the time such effect would really begin, growth would have long since returned. Besides, such a sudden shift in priority would lead to runaway inflation in the various goods and services involved: concrete prices, iron rebar, engineers' salaries, etc. We already are plagued by some of these costs on a global basis in large part due to China.

Here's an example of the small things government could do to get past a recession:

Currently, "first time homebuyers" (a definition so broad that only bureaucrats would apply the term to those qualified) can take up to $10k from IRAs as a downpayment on a home without paying a early-withdrawal penalty (but any taxes due still must be paid).

Why not - temporarily, say for the balance of 2008: (a) expand the definition of first time homebuyers even further, (b) increase the dollars to $15k or $20k, and (c) waive any income tax?

Such an approach has the merits of focusing precisely on the segment of the economy that is hurting, helps the middle class far more than either the wealthy or poor, and frankly wouldn't cost the Treasury all that much money. It also minimally distorts the economy by only accelerating decisionmaking by persons who already have the money to buy houses that are already sitting in inventory. That is, it doesn't try to put people too poor into too much house, nor does it encourage further investment in an economic segment already overinvested.

There are endless such small, targeted mechanisms to temporarily cause spending that eventually would occur to be executed in the shortrun. Unfortunately, those who would benefit have little voice when competing with either ideologues (using the opportunity to push their favored agendas) or businesses shoving their way forward to the feeding trough.
1.20.2008 4:30pm
John Thacker (mail):
It's no secret that our roads, bridges, and public transportation systems are falling apart, that we're behind much of the developed world in internet-age infrastructure like broadband and wireless capability.


As far as wireless goes, no. It is true that wireless access is different in the US and Canada than elsewhere, but primarily because voice is much more popular in the US and Canada, whereas SMS (text) is comparatively more popular elsewhere. US and Canadian phone plans tend to be about twice as expensive per month as in the rest of the world, but contain about four times as many minutes.


One reason is that most of the rest of the world has "caller pays" systems for cellular telephones, like with the landline system.
The net effect, as anyone who has called a mobile phone in another country knows, is that it is [i]much[/i] more expensive to call a mobile phone than a landline in those countries. The SkyeOut rates, for example, are often ten times as much or more per minute.
Another reason is mass transit-- voice is definitely preferable to text when driving, but texting is clearly superior to voice when riding mass transit.

As regards broadband, the US is indeed behind the Japan, Korea, and anywhere particularly cold, while ahead of Germany, Italy, France, and Spain in percentage of people with broadband. There are, again, multiple factors at work. Not least is population density and, more importantly, the percentage of people who live in a small areas. (Canada and the Nordic countries have technically low population densities, but a far greater percentage of their populations live in one or two metro areas than the US.) Another important factor relates to the same reason that the US leapt ahead in modem accesses back in the day-- unmetered local calls. Most other countries had pay-per-minute for local calls, which made modem Internet access [b]very[/b] expensive by contrast. The USA continues to lead all countries in overall percentage of the population with Internet access, according to the OCED, but a surprisingly large percentage of people simply do not see a need to switch from modem-based access to broadband. Even $20/month DSL has been unable to get all of these people to switch. The broadband [b]infrastructure[/b] is there, that's not the issue.

It is entirely unclear what sort of "infrastructure investments" would change this, outside from a massive switch to mass transit that would encourage texting and discourage voice use. There are policy changes, but the benefits and drawbacks are complicated.
1.20.2008 5:22pm
Tony Tutins (mail):

His successor vastly multiplied the public works program, and the Depression deepened and continued for ten years.

But we received a tremendous legacy of museums, zoos, aquarium, and the new-fangled planetariums. Half the post offices I've been to were built during the Depression. The boom times of the Fifties were accompanied by the building of the Interstate Highway System, so public works are at worst neutral for the economy.

If I received a surprise check for $1600, I would think about getting an HDTV to hang on the wall. This would likely benefit the economies of S.E. Asia more than the U.S. economy, so I like Russell's idea.
1.20.2008 5:34pm
SenatorX (mail):
Someone mentioned clearing methods for the off the book derivatives and I also thing something along those lines would be a great benefit. One of the biggest problems is all this stuff that can't be marked to the current market prices without the companies being obviously insolvent. So everyone is standing around acting like each other is not bankrupt while hoping the market values go up before they get forced to sell. That is why there are continual waves of markdowns that have and will be occurring(and

I don't however think all derivatives are bad it's just the ones that are not part of an auction market get allowed to be booked with inflated values. Things such as Dark Pools (which are growing rapidly) are where imbalances grow to the point of causing massive systemic problems.

The options market is a great example of a functioning auction and if all these financial derivatives were forced to trade via open auctions then the prices would be set correctly and continually by the market players(or least better!). Instead we get companies like J.P. Morgan (JPM) who report great quarters and apparently have no issues while at the same holding the largest derivative book of anyone. Who knows what that stuff is and what it is really worth? To invest in JPM stock you have to hope they are tricky enough to pull it off more than any sort of sound financial decision based on their business.
1.20.2008 7:17pm
Paul Allen:

But, in the short-term, we need to avoid or ameliorate recession and lower the unemployment rate. The deeper any recession is will definitely lower government revenues, which will make the deficit worse, not better.


That's an interesting theory, but sadly you haven't gotten your facts straight. 5% unemployment isn't particularly noteworthy. We are observing a 'panic' that's out-of-step with the facts. Unemployment is _low_, arguably even dangerously low. Loan defaults are NOT high by historical standards. The risk is that they will become high.

What's really happening is that the prime rate needs to be held down, otherwise people with ARMs will ACTUALLY start to default. To do that we need to hold down interest rates which means trimming the deficit NOW.

Everything else is smoke and mirrors.
1.20.2008 8:34pm
Paul Allen:

The stimulus represents what everyone recognizes as a Keynesian stimulus all the while Keynes is being reviled.


I'm just wondering: have you read Keynes's General Theory?

Its a very convoluted book: making use of mathematical notation but generally relying on soft language and blurry definitions for logical consistency. But most importantly it doesn't really say what people commonly presume: namely that demand stimulus works in own regard.

Actually what it says is:
1) classical economics is wrong to assume that a reduction in nominal wages is a necessary adjunct to recovery
2) recession is a result of real wages being too high
3) because unions will resist decreases in nominal wages during recessions, the government needs to engage in inflationary activity to bring a correction to the real wage rate.

The real beauty of Keynes's argument isn't its originality--it was never original in so much as what he labels classical economics is limited to the British/Marshall school. No its beauty is in using a complex presentation of a previously well-known idea and obscuring cloud of rhetoric by which to implement it.

Unfortunately for Keynes and FDR, intellectually quickly took to only studying the Cliff's notes rendition... thus spawning 40 years of ill-fated economic reasoning.
1.20.2008 8:45pm
dew:
Even $20/month DSL has been unable to get all of these people to switch.

This probably has a lot to do with "$20/mo" DSL, actually $18/mo here, not being available in (geographically) most of the US.

This includes, where I live, even large parts of many upper middle class suburban communities. The local phone company seems to be unwilling to install DSL repeaters to extend the range of DSL in the curious belief that many of these thousands of households will magically decide to buy FIOS internet at $43/mo (cheapest plan) when they have already rejected Comcast cable internet ($43/mo cheapest plan).
1.20.2008 8:52pm
A.C.:
I thought that $300 rebate WAS part of the ongoing (not yet permanent) tax cuts. It was the result of creating a 10% tax bracket, when marginal rates had previously jumped from 0% to 15%. This was made retroactive, so people got back the extra 5% that they would have been taxed on the $6000 the new bracket covered. More or less -- that was the theory as I understood it. But the 10% tax bracket is still there, lowering our taxes with every paycheck.

I spent my $300 on a KitchenAid mixer. It's great, and a lot of people are eating better baked goods than they would otherwise because I have the thing. It was also made in the US... when the government sent me a check with the message to buy something to help the economy, I picked an item off my wish list that happened to be made here. If I got a bigger tax rebate this year, even a temporary one, I would be sure to spend at least part of it on goods and services produced here. It could be prescription sunglasses or something else I've been meaning to get anyway -- I would just move the purchase up by a few months. Other people might go ahead and retile the bathroom, when they were intending to do it next year. That's the effect the government is counting on.
1.20.2008 10:30pm
gattsuru (mail) (www):
The local phone company seems to be unwilling to install DSL repeaters to extend the range of DSL in the curious belief that many of these thousands of households will magically decide to buy FIOS internet at $43/mo (cheapest plan) when they have already rejected Comcast cable internet ($43/mo cheapest plan).


Given that DSL repeaters are brand spanking new technology, and the current iterations have to be installed every three kilometers, and result in more users to the same band-width limited loop, the phone company's plans are pretty understandable : they'd be unable to provide broadband levels of service at those prices.

The vast majority of the time, simply running fiber to the neighborhood and then placing a DSLAM out there would be more cost-effective.
1.21.2008 1:02am
Mary Katherine Day-Petrano (mail):
"'So if you give money to consumers, they will go out and spend it, but the buck probably stops there.'

They wont even do that. The money will more likely go to pay taxes or to pay down debt."

No, Senator X, THAT is not what people will do with the rebates. I think there are waaayy too many wealthy conservative ivy tower types in positions of power who don't have a clue what happens in such a disastrous downward spiral as we are seeing unravel before our eyes.

I am sure I will be flamed for what I have to say, but, hey, there are a LOT of Americans who believe the same things I do, so the others need to DEAL WITH IT since they may none-too-soon find themselves outvoted.

The rebates being proposed are only going to help those people who are making enough money to be in the "pay taxes" class, not the millions of impoverished Americans who do nto make enough even to pay taxes. So right there, what we can deduce, given what anyone can clearly see at the gas pump is -- the taxpaying SUV owners will ismply spend up the entire rebate on about two gas tank fills of their SUVs at the gas pump, and then ...

the economy will nosedive.

But query: what kind of thinking do you expect from one whose mother visited the Katrina victims in the Houston Astrodome and told the Katrina refugees they were "underprivileged anyway, so this is working very well for them."

"The money comes from where the money comes from" LOL. Totally delusional economic policy.

Investing in infrustructure is a great idea, especially the Internet and broadband, but the amount of funding presently going for the rebates would be totally insufficient for the type of infrustructure investment this Nation needs.

People don't want to hear it, but this Country is headed for an economic disaster beyond imagination. The ONLY way out of the downward spiral is the following:

1. Tax all assets and income of every kind of everyone making over/possessing assets over $100,000 income annually/asset value at any given time at a rate of 90-95%, including dividends, capital gains, the inheritance tax, and the tax on corporations that do not solely do business in America;

2. End the Iraq war and the obscenely wasteful spending on it, and go after bin Laden and get him and the core operational capacity of al-Queada;

3. Prohibit all foreign investment in American banks, businesses, infrustructure, factories, computer companies, real estate, and place such property back in the hands of Americans, and prohibit the oursourcing of American jobs;

4. Cut all unnecessary red tape interfering with trades and licensure to ensure the full employment of all Americans (human resources have a value we cannot afford to squander, and a resource we do not accurately measure);

5. End NAFTA and some of these other trade pacts that are outsourcing all American jobs and businesses, and rebuild America as a creditor Nation (not a third world debtor Nation); raise import taxes;

6. Enact very strict criminal and monetary penalties on employers who employ, landlords who rent, etc to persons illegally in this Country, prohibit all money transfers from illegal back to their native Countries, and send them all home;

7. Prohibit anyone from owning more than 1 housing unit, until each and every American owns his/her own home; no speculation and flipping of housing stock;

8. Require every American to drive a gas efficient and/or alternative energy vehicle, unless the person can justify a need for a larger vehicle, truck, or the like (e.g. for business). No more gas guzzling SUVs oqned by some greedy people hogging up (and driving up the price of gas each and every other American needs to work and make the economy keep perking along;

9. Use the new tax income flowing to the Treasury to rebuild our infrustructure, ensure the best health care for each and every American, and guarantee each and every American a free and appropriate college education leading to living wage employment;

9. Require all federal and state courts, agencies, employers, and businesses to make their programs, services, activities, products, etc available via electronic Internet, to minimize unnecessary paper usage (trees), vehicle trips, etc. -- a carbon reduction/gas usage reduction measure;

etc.

"Why stimulate in the first place? Recessions are really a necessary rationalization of the economy. Elements of production, such as capital and labor, need to be periodically reallocated for long term economic growth." ---> This is very true.

If we value our National Security as a Nation, we should be letting the collapse go forward of all those who are responsible for the current mess. We SHOULD NOT be borrowing from foreigners, allowing foreign investment to "own America," and MUST reduce our dependency on foreign oil.

We are much better off ending our dependence on foreign Nations, and through such collapse and mass layoffs by letting the chips in the current mess fall where they will, we will be peeling off layers of dead skin, so to speak, and there will always be more Americans who were not involved in creating this mess ready to innovate, produce, and purchase the new opportunities that arise. Why should we reward and save the fools to allow them to create another pyramid mess again?

Auto loans out of control? Credit card debt going bust? Student loans defaulting in droves? Deal With It! More symptoms of the same disease resulting from the drying up of the home equity luxury binge spurge of those who created the current economic mess.

We should think about what truly impoverished people, desperate people, do when confronted with no money or income -- they innovate and create, and this seeds future productivity and economic expansion.

In sum, we need to take back American independence, because if we don't, we will wind up such a debtor Nation that we will not be able to keep up defense spending, space exploration, and all those research projects that maintain us as an advanced Nation. Our National Security will crumble.

Most importantly, we need to create incentives to plan and relocate for the effects of abrupt climate change due to global warming to keep our economy vibrant, rather than wait until events spiral out of our control into chaos.

Another thing, we need to get rid of all the phony measure used in this Country -- the rigged "unemployment rate" and take a real measure of how many Americans are unemployed or underemployed; the real inflation numbers (not subtracting out items that would make the numbers *look bad*), etc. Cooked books are just that, and are no real help to solving the problems we have on a sound basis. Cooked books didn;t work for Enron, and they will never work for sound economic policy in this Country.

There are other reasons for our trashed economy, including the fact that when a Country becomes a police state with a law enforcement-based economy, surveils it citizens, etc, there can be NO STABLE ECONOMY.

How can any of us:

1. Invent and patent something without some federal/local law enforcement officer overhearing our idea and beating us to the patent filing to steal the fruits of our innovation and labor?

2. Have any semblance of a confidential communication with our attorney or medical doctor without some federal/local law enforcement officer blabbing our confidences everywhere?

3. Locate what we regard through our own business acumen and analysis to be a potential business opportunity, without a federal/local law enforcement officer doing a little 'insider trading' of his or her own, beating us to the purchase?

4. Obligate ourselves to an agreement on a loan for a home, car, truck, boat, or other big ticket item, with an unbounded risk some federal/local law enforcement officer and his or her department will fabricate a reason to entrap us and use such as a pretext to claim a seizure of our asset while leaving us with the payments and deficiencies.

NO free market capitalistic economy can run smoothly and profitably under such law enforcement-predicated risk.

THAT is why everything is crumbling -- all the way to a DEPRESSION.

Just WAIT until the Chinese dump the dollar and oil is no longer traded in Petrodollars.
1.21.2008 1:27am
Just a Nut (mail):
Paul Allen seems to imply that the policies in place currently are not Keynesian. This is disingeneous. He does admit the complexity of the theory, at least to him, and is right that it is not original. It is reviled unfairly nevertheless. Supply side economics may be argued to be a special case of the Keynesian stimulus to the extent tax rebates promote demand even if with deficits resutling due to the tax cuts. Permanent tax cuts are an infrastructural investment--provided their utility is demonstrated. In other words, government expenditures, including tax-payer funded oversight functions such as the FDA, Securities Commission, curtailed by lower taxes should translate into increased productivity.
At this time, employment/demand has been boosted by a few hundred billion dollars worth of defense expenditures, the defacto new infrastructure, and without taxes to pay for it- this is classic deficit spending. Keynes pointed out that the inflationary effect of such expenditures will be tolerable compared to slacking demand (recession--which GB saw as coming or already here on assuming office).
It has worked even better than what would be expected for a self-contained economy. We had reasonable growth and low employment with inflationary pressures contained somewhat by globalization--production of low cost goods elsewhere and the financing of deficit financing by the other countries' trade surplus.
The other leg of Keynesian theory that too high wages are responsible for slacking demand is believed to be true for at least the middle and lower classes by the powers that rule. Hence, tax-cuts favoring the relatively well off.
The difficulty is that the expenditures to date have not put in place the infrastructure to produce income in the future-at least as far as we can tell--only more expenditures in Iraq and Afghanistan--both arguably the result of mismanagment and incompetence. Thus, the expenditures may have been wasteful or inefficient due to a misunderstanding of the investmetns being made in wars and higher wages for the wealthy.
The problem with the financing markets is different however. Having opaque trades and insurance/reinsurance deals fits in with neither supply side economics or Keynesian stimulus. It is just facilitation of fraud by allowing risk to be hidden instead of being valued fairly in the guise of avoiding excessive regulation. Free markets benefit from relatively free information flow and trade. The credit swaps and similar contracts lack both, but are girding the account books of most banks. They lack these to avoid being treated as securities and laws relating thereto which are not fraud friendly, the recent ruling from the Supreme Court does not greatly change their impact.
Recognition of the instability in debt backed by credit swaps causes problems in, for instance, jumbo loans for which Fannie May and Freddie Mac are not there to ensure liquidity. Now we have very low rates for regular loans (thank you Freddie and Fannie) but quite a jump for jumbo loans. Further, with the knowledge that debt insurance is likely non-functional, any risk of additional defaults becomes magnified. Hence the freeze-up in the markets. Similar problems are present in sectors other than housing as well.
The long term solution is to treat credit swap contracts as securities and have central clearing to let the sunlight in and allow proper market pricing of risk. Such risk may be due to phony valuations of ability to pay or other practices that need to be priced higher than they were by the manipulation of the rating system by using credit swaps to hide the risk.
Famously, you can fool all the people some of the time, . . . . I hope it is true.
1.21.2008 6:06am
DLM (mail):

Tax all assets and income of every kind of everyone making over/possessing assets over $100,000 income annually/asset value at any given time at a rate of 90-95%, including dividends, capital gains, the inheritance tax, and the tax on corporations that do not solely do business in America;


This is the worst idea I have ever heard. Frankly, I shudder at the thought that anyone who supports this kind of wholesale confiscation of private property has the right to vote.
1.21.2008 8:44am
Crimso:
MKDP:
You're joking, right?
1) 90-95%? That'll really do some good. Wonder why that's never been tried before.

2) Invade Pakistan? Right...

3) Cut ourselves off from the rest of the world economically? That'll work.

4) First part of that sentence is reasonable, second part translates to 0% unemployment. That is not desirable (or attainable) for a no. of reasons.

5) I'll not pretend to fully understand the complexities of NAFTA, "import taxes" (different from tariffs?), etc. I do know people who complain about NAFTA, but can't really explain why. Can you make me understand?

6) I can live with that.

7) Wow. Just wow. That logic made only slightly more general sends us to places I refuse to go. Say you want a revolution?

8) See reply to 7 above.

9) The "new tax income" will be very much at the expense of the economy. I'm not an economist by any remote stretch of the imagination, but it seems to me that you are offering (taking point 9 in conjunction with others) a prescritpion for an "economy" somewhat similar to the USSR. Great economy, there.

9) (sic) "Carbon reduction?" When you can give me a solid scientific reason for doing so, I'll consider it. Which isn't to say that reducing reliance on foreign oil is bad. It isn't bad at all. But the reasons have nothing whatsoever to do with carbon.

Going to protest the next G8 Summit?
1.21.2008 8:47am
newscaper (mail):
I have this one objection -- whenever my state or local govt goes on and on about how some big project (either state run or private but subsidized, like a new mfg plant) will "create" thousands of jobs (or more), they are usually temporary construction jobs.
a) Most people don't can't work construction.
b) For a bonus, construction probably has the highest percentage of illegal workers after fruit picking. WHo gets those $$? Family back in Mexico?
1.21.2008 9:36am
Paul Allen:

Paul Allen seems to imply that the policies in place currently are not Keynesian. This is disingeneous. He does admit the complexity of the theory, at least to him, and is right that it is not original.


Lets get one point straight: its the presentation that's complex, not the underlying ideas.

And to repeat myself: Keynes does not really argue that demand stimulus works in its own regard. He argues that it is inflationary and helps drive down real wages. He completely failed to take account of the increasing sophistication of unions and individual workers in understanding and pricing inflation into their wage demands. Ergo, his ideas 'stopped working'.

You suggest the ideas are independent. This is wrong but likely a consequence of the great lengths that Keynes went to dress up his real proposal (decline in real wages) as something else.
1.21.2008 11:53am
SeaDrive:

And to repeat myself: Keynes does not really argue that demand stimulus works in its own regard.


However my economics prof argued it for him, circa 1967, the idea being that increasing gov't expenditures without raising a taxes (i.e. running a deficit) inceased total demand. I remember being skeptical at the time that the division of the economy in "gov't" and "non-gov't" was artificial.

Many of the arguements above rely on notions of equilibrium. Economics is actually rather weak, I think, on the question of how long it takes for an economy to return to equilibrum after a stocastic shock (i.e. sudden change). This is partly because, in the real world, the economy is subject to continuous shocks of various types and sizes, and is always out of balance, though moving toward an equilibrium condition (or perhaps some sort of stable cyclical behavior).

A plan for some sort of gov't intervention is, in itself, a proposal for a stocastic shock, so any arguement based on an equilbrium theory is immediately suspect, though not necessarily irrelevent.

Keynes is supposed to have said, "In the long run, we are all dead."
1.21.2008 12:21pm
Tony Tutins (mail):

Require every American to drive a gas efficient and/or alternative energy vehicle, unless the person can justify a need for a larger vehicle, truck, or the like (e.g. for business).

My neighbor lives with his wife, two kids, and his elderly parents. Whenever they go anywhere as a family, they use her minivan. Does it really make more sense for them to take two vehicles that get 40 mpg each, when they go to church or go shopping, rather than one minivan that gets 25mpg? His parents don't drive, by the way. Or could they get a minivan-exemption from your proposed new larger-vehicle-need-approving bureaucracy?
1.21.2008 12:52pm
Paul Allen:

However my economics prof argued it for him, circa 1967, the idea being that increasing gov't expenditures without raising a taxes (i.e. running a deficit) inceased total demand. I remember being skeptical at the time that the division of the economy in "gov't" and "non-gov't" was artificial.


Yes. This was and is argued. The argument is that the government consumes 100% of its income whereas people 'save'. I find it difficult to align this notion to present day: namely that the household savings rate is negative. So it isn't clear to me that government spending is more high-powered than tax-cutting.

To be honest, I don't thinking 'savings' even means the same thing it did in 1930. One of the problems that Keynes discusses is that households may be willing to save more than businesses are willing to invest. Part of the idea is that government would borrow against this excess savings and turn it into consumption.

The trouble with this theory is that people don't really 'save' in the sense of accumulating monetary holdings. They accumulate assets instead, e.g., stocks. The stock market actually serves both to funnel would be savings into investment and to funnel would be savings into consumption.

BUT, as we can see that consumption money is presently ending up in banks--a flight to quality. So we have the savings problem, but government borrowing is only going to enhance the yields on this saving... making it more tempting and worse.
1.21.2008 1:11pm
SeaDrive:
It looks to me like the political fight will be between mailing a small check to all taxpayers and a more targeted approach including extension of unemployement benefits.

I won't be surprised if some relief for sub-prime (and other adjustable rate) mortgage holders will be included under the rubric of "supporting the economy", and it may do that, but the real reasons are reducing the problems of the lenders on the one hand and pandering to a block of troubled voters on the other.
1.21.2008 3:03pm
George Smith (mail):
Lets assume that the "rebate" is going to happen, no matter how bad an idea we might think it to be. What to do with the $800? If we want to help accomplish the stated goal to goose up the economy, my suggestion is to hire someone. Put the money right into the pocket of someone who will then make their own decision about how to spend it, rather that sending it to China with an electronics purchase. Hire someone to fix the deck, do that electrical work around the house that you can't do, replace some windows, mow the lawn, remove that dead tree, paint the living room, refinish the floor, fix the dent in the fender, or anything similar. Put the multiplier into action. You have purchased a service (with the goods that go with them), employed a worker, generated tax revenue, and set in motion other folks doing the same.
1.21.2008 3:20pm
A.C.:
For that matter, go to the dentist. Or to a concert -- musicians play for money, and they work less when people don't come.

US-made goods are another viable option, as I mentioned before. Just hope that it doesn't have to be Crane resume paper.
1.21.2008 3:57pm
Seerak (mail):
Basically, stimulus that results in savings or paying down debt will have no positive effect whatsoever.

Of course not, since debt and its attendant payments have no effect on an individual's disposable income whatsoever.

And that savings is most certainly not compounded by any, you know, interest on debt paid off.

/sarcasm

It's amusing to see the same insistence on *consumption* as an economic driver reaching its reductio ad absurdum again and again -- economy slowing down, threatening to make us all poorer? Then let us consume more, so that we'll have more.

Inflation defers pain today at the price of intensifying it tomorrow (by spurring further credit-driven consumption and investment into economically non-sensical investments) later. Not so coincidentally, debt (deficit financing) does the same thing.

The "public works" concept could actually seem a bit defensible, by comparison, because of its long-term returns -- but that is the argument for *debt reduction* too. And even so, it doesn't help the case for "public works" when one realizes that this was how FDR turned the Crash into the Depression -- by diverting capital into dead ends and forms that would not be productive for a long time.

The inly difference between that and inflation is that it's the public which looks for ways to pour money into the dead ends (beore it loses more value) or the static investments of "real" wealth with very long horizons ("hedges" against inflation, anyone?)

Government spending is the main variable to watch -- not interest rates or "stimulus". It is the measure by which the government destroys wealth; all that inflation does is affect the distribution of the loss -- when does it come, and who pays the piper. The spending of the Great Society and the Vietnam War is what gave us the 1970's, not oil prices. That sort of thing has a lag of about a decade.

So what's happening now? The biggest increase in domestic entitlement spending by any president in how long... and a war. Been going on for what, seven years?

It's just getting started. All that is not certain is when the hangover starts, and whether it takes the form of double-digit inflation or Paul Volcker's heir at the Fed killing the economy with 20% interest rates again.

All that is old, is new again.
1.21.2008 4:25pm
Mary Katherine Day-Petrano (mail):
"This is the worst idea I have ever heard. Frankly, I shudder at the thought that anyone who supports this kind of wholesale confiscation of private property has the right to vote." ---> Don't tell me ... you worked the road blocks in Miami-Dade during the 2000 &2004 Presidential elections to prevent the African Americans you *don't like either* from voting! LOL

See, while I respect your Free Speech rights to criticize my viewpoint, you don't respect the fact millions of American voters may substantially disagree with your brand of policital ideology. Which is:

1. Give out wads of free money to subprime home buyers with escalating resetting ARMS who were never asked to fill out a financial statement to justify their ability to repay the mortgage;

2. Let those wads of free money lazy greedy freeloaders quit their jobs, take out home equity lines of credit against their housing-bubble fraud-paper profit home appreciation to go on a lush spending binge of five SUVs and Escalades to every home, several Hawaii and Cruise ship vacations every year, thousands of dollars of designer clothes from Rodeo Drive and Saks Fifth Avenue every season to keep up with "fashion change," spend on tummy tucks, face lifts, boob enhancements, penile enlargements, etc.; and

3. when the pyramid scheme collapses, make sure you give the losers a Golden Parachute to further thair fiscal irresponsibility 101, a welfare government handout to "save them" from their own folly, poor judgment, and excesses that would make Clinton's "welfare reform" look like a cake walk.

And you call suggestions the fiscal irresponsibility be ended and those with poor judgment suffer the consequences of their losses by allowing the chips to fall where they may, "this kind of confiscation of private property"!! ROTFL!

Yet, you fail to see that most tax policy since the passage of the Rehabilitation Act of 1973 (1973) and the Americans With Disabilities Act (1990), together with the current qualification criteria in the legal profession for the Bar/Bench, effects similar "confiscation of private property" by disparate impact on America's disabled population (at least 43 million Americans as of 1990, 18 years ago ... totally disenfranchised homeless dying schumcks).

Since you admit you disagree with the idea of a Republic predicated on Democracy, DLM, why don't you join the party of Dictatorship? Oh, I forgot, you already DID that, you joined the party that manned the vote-blockades to keep out the African American vote, and now you want to keep out the disabled vote as well. And your brand of Republicans tried a Stalinist Dictatorship economy, but where has it gotten us now, exactly ...

Padilla v. Yoo, Higazy v. FBI, and our currently crumbling economic DISASTER! Yeah, Americans really need more of that ...

Crimso, I'm not a G8 protester or any other protester type. I never suggested I wanted any Revolution or any such nonsense; I suggested we need "1000 points of light" -- and I set forth the economic presciption that would give us just this necessary spark.

No human being can be a taxpaying productive American without a safe home to call their own in which to live, eat, shower, sleep, and cool down or warm up. If you do not understand that, you could never have operated even the sweat factory of the late 1800s/early 1900s that built the prosperity of our Nation, and is presently building that of China.

Next, you mock the economy of the successor-in-interest (Valdimir Putin's Russia) of USSR? You may not *like* Putin, but whatever you think about him, he is building a formidable economic machine.

Why do you think he cornered Gazprom, the pipelines leading to Eastern Europe, and terminates service when the bills aren't paid. Moreover, Putin' push to the de-iced Artic seas and through Iran to to control the Straights of Hormuz are what should really make Americans shudder, but whatever you personally think about Putin, he is a very intelligent and astutue economic thinker.

Too bad we have dumbed-down so much of America with our love-affair for A-B-C-D tests, because so long as we continue to do so and stifle innovation and creativity, we will never as a Nation produce economic thinkers on the order of Vladimir Putin.

Moreover, Putin was not afraid to learn many skills from the bottom-floor up, rather than whining for a silver spoon to be placed in his mouth like POTUS 42, as evident by the many activities in which Putin excels -- have you ever seen Putin's physic or his ability to ride a horse in correct English riding apparel? The point is you can mock Putin's economy until you are living in a cave thru the downward spiral of our own economic collapse, but mockery does nothing to identify the problems we are having, our competition, and find a solution.

Further, Crimso, your statement "a prescritpion (sic) for an 'economy' somewhat similar to the USSR," demonstrates your lack of an education in the history of the Republican party and our need to return the wayward Republican party to its roots -- Dwight Eisenhower, one of our best Republican Presidents who presided over the most solid and prosperous economic era in American history (BIG cars, LOW gas prices, every American living in a home with a white picket fence, virtually no homelessness, affordable medical care for every American, well-paying (living wage) jobs galore, strong unions, almost full employment, no illegals cheating American citizens out of their righful place in our economy, BEYOND a strong dollar, BEYOND a strong National defense, safe airplanes, roads, schools, bridges, Wold class infrustructure, etc) brought this quality of life and prosperity to ALL Americans by maintaining a 91% tax rate on the wealthiest Americans. And Ike didn't live in a McMansion.

Additionally, Eisenhower warned us about the "military-industrial complex" law-enforcement based economy we now have in which:

1. patent invention secrets can be stolen by law enforcement before the inventor files for his/her patent;

2. attorneys and doctors can no longer maintain their clients/patients confidences inviolate, giving law enforcement a tactical advantage in court by knowing the secrets of the opposing party to the litigation;

3. prospective business opportunities and advantages can be scalped and stolen by law enforcement for a little self-dealing insider trading profits;

4. no low risk/stable big ticket items/home loans can exist due to fear by Americans that law enforcement will plant contraband in their cars/homes to create *justification* for asset seizure to fund law enforcement departments as means to plug the gap in funding caused by all the fiscally irresponsible tax cuts of POTUS 43, leaving the borrower with ongoing loan payments and deficiency judgments.

Crimso, why are you so oppositional-defiant in returning the wayward *new age Republicans* who have created havoc and chaos of imminent Depression and threatened our National Security to the solid economic roots of the Republican party of Ike?

Tony Tutins, nice try at your faux argument to stop the return of the Republican party to its roots. Your example leaves out numerous other uses of the two 40 mph vehicles, the total number of vehicle miles driven by the family, etc. Thus, sorry to say, your argument lacks sufficient factual support to reach the conclusion you propose.

I can give you another example, however: Countless people in massive gas guzzling SUVs and duallies who have nothing to haul but their own fat oversize bellies.

These vehicles make economic efficiency sense if they are hauling livestock, lawnmowers, heavy equipment, etc. Our Nation can no longer afford the wastage of gas guzzling fashion statements.

We likewise have the computer technology (no need for a beuracracy) to prevent a vehicle from being started and driven if a person is DUI; I'm sure we can similarly prevent fashion statement gas guzzlers wasting our precious natural resources and unnecessarily driving up the price and dependency on foreign oil that is threatening our National Security.
1.21.2008 5:26pm
Mary Katherine Day-Petrano (mail):
corr: "POTUS 42" = POTUS 43. (A typo error, for which I humbly apologize to POTUS 42).
1.21.2008 5:34pm
Crimso:

Next, you mock the economy of the successor-in-interest (Valdimir Putin's Russia) of USSR? You may not *like* Putin, but whatever you think about him, he is building a formidable economic machine.

Um, no. I mocked the economy of the USSR. I said nothing about Russia. All further references of yours to Putin are an attempt to build a strawman.


every American living in a home with a white picket fence

Highly doubtful.


brought this quality of life and prosperity to ALL Americans by maintaining a 91% tax rate on the wealthiest Americans.

Cause and effect? I'd say the prosperity of the '50's was more likely in spite of a draconian tax rate. Just as generals are often accused of trying to fight the current war as though it was the previous one, so it seems you'd like to treat the current economy as though it's the '50's. It would be an interesting experiment, but I refuse to give consent.
1.21.2008 7:53pm
Crimso:

Tax all assets and income of every kind of everyone making over/possessing assets over $100,000 income annually/asset value at any given time at a rate of 90-95%, including dividends, capital gains, the inheritance tax, and the tax on corporations that do not solely do business in America

And what would you do if the government were planning on taking 90-95% of your assets? I know what I'd do. Leave the country, taking every thing I owned.
1.21.2008 8:02pm
seadrive:

And what would you do if the government were planning on taking 90-95% of your assets? I know what I'd do. Leave the country, taking every thing I owned.


I belive that at one time, the UK had a tax rate of 90%, or nearly, on the top brackets, and, in fact, everyone who could took their income out of the country.
1.21.2008 8:36pm
Mary Katherine Day-Petrano (mail):
"'And what would you do if the government were planning on taking 90-95% of your assets? I know what I'd do. Leave the country, taking every thing I owned.'

I belive that at one time, the UK had a tax rate of 90%, or nearly, on the top brackets, and, in fact, everyone who could took their income out of the country." ---->

Inland Revenue, UK wrote the book on sandbox tantrum crybabies like you guys. However, some big money earneres like Paul McCartney stuck it out in their high tax homelands, paid the 90% tax rates, and they're still doing A-okay. The tax evaders, on the other hand, have always ended up in the dumps where they belong.

"Just as generals are often accused of trying to fight the current war as though it was the previous one, so it seems you'd like to treat the current economy as though it's the '50's. It would be an interesting experiment, but I refuse to give consent." ---->

What's going on now, these ridiculous experimental low rates of tax for the wealthy, is the experiment. What Ike did with the 91% income tax on the wealthy was no experiment -- it was a working/successful formula.

Let's put it another way: Ike's America was a well-manned sound ship with lots of bilge pumps. Post-Reagan *new age Republican GOP* voodoo trickle-down is a rusted hulk with no bilge pumps rapidly going down towards the rocky bottom.
1.21.2008 8:54pm
Toby:
Somehow half the posts remind me of a George Carlin (?) routine. "The first tiem I tried cocaine I was a new man. The first thing that new man wanted was some more cocaine"

Somehow, no matter how bad the hang-over from over stimulation of the economy, the first thing some advocate is more stimulation. Hair of the dog, I guess.

No wonder I can't buy sudofed anymore.
1.21.2008 9:12pm
Tony Tutins (mail):
Mary-K-D-P: one reason the Fifties were such boom years is that the US (and Canada) were the only countries whose factories had not been bombed to hell and gone during the war. Even though the war had left things in Britain were bad enough that food rationing continued well into the Fifties, Brits with money were buying right-hand-drive Plymouths. But, even though we were cranking out product, there were still two serious recessions during the Fifties.

If you could arrange to have Asian factories levelled to rubble, then we might have boom times again.

US-made goods are another viable option

If I was in the market for guns, cigarettes, or furniture, that would work. Otherwise, not so much. I used to look for Made in USA every time I shopped. But I gave up about four years ago, when every historic American brand I had ever bought started making their products in the third world.
1.21.2008 9:54pm
A.C.:
Not all brands, although I do agree that the problem has gotten worse in the past five years. There are things I won't even buy anymore because an inferior, made-in-China substitute is being passed off under a label I used to favor. And I do mean inferior... product glitches like stitching and zippers that don't match the leather are becoming a lot more common. (I'm referring to things like fashion accessories and briefcases here, so don't get any strange ideas.) No stimulus package is going to get me to buy that crap, so retailers can just forget it.

But there's still loads of artisan-made stuff out there, as well as brands like Pendleton and Crane that still manufacture here. Most of the stuff that passes through my house on a turnover of less than six months is made in the US as well, as are most permanent metal tools (workshop or kitchen). It's really just clothes, shoes, and electronics where you can't buy American even if you want to. I'm not sure why the US can manufacture detergent but not T-shirts, or videos but not the machines to play them, but there you have it.

And then there's the "stuff" that has a service component, eyeglasses being a prime example. The frames may be imported, but the lenses get ground and installed here. That sort of thing counts too.
1.21.2008 11:02pm
Truth Seeker:
And what would you do if the government were planning on taking 90-95% of your assets? I know what I'd do. Leave the country, taking every thing I owned.

Hate to break this to you, but there's currently a 35% tax on all assets of people leaving the country for good, and then you must pay US taxes for 10 years after leaving. Scary stuff!
1.22.2008 12:18am
Mary Katherine Day-Petrano (mail):
A.C., I agree with you about the inferior quality products we are frequently getting from China.

I have seen some fair products from India, like $29 leather drawreins for horses made out of something called "Suffolk Leather," that looks wrinkly but far outlasts the $200 leather drawreins no one can remotely afford.

But my very favorite of all time was the little horse brush I got for $2.50 which was such a perfect soft body brush for a sensitive-skinned Thoroughbred. It had a sea green rubber backing, and was made out of genuine horsehair dyed grey and white ... on the rubber backing it said "Tail Brush." It has been the source of many good laughs around the barn.

Apparently, the Chinese, who originated the Huns and some great horses/horsemanship in ancient times out of Mongolia, don't know a thing about horses anymore. They have the factories and make these horse "Tail Brushes," but they don't seem to know you can't brush the thicker stronger wiry tail hair of a horse with a brush made out of the much softer horse's body hair.
1.22.2008 2:13am
Just a Nut (mail):
MKDP:

Please note there is a big difference between the Chinese and the Huns or the horsemen out of Mongolia. Chinese were rpeatedly colonised by the Horsemen. Not that it excuses the lack of attention to the brush details.

Paul Allen:

It should be noted that Keynesian and its subschool, Supply Side Economics, are both in agreement that wages are too high. Whether they be reduced by inflation, mild or otherwise, or by tax rebates directed to the rich or by union busting or a combination of such measures remains open to debate. There is bipartisan agreement that free trade is needed and the wage differential means many jobs will either be lost or wages reduced or both. A soft landing gets the job done without a revolution. Done it must be.

What is not clear is why do China and India etc. need a free pass on environmental and safety issues? Having the massive wage differential in their favor, they should not be needing special privileges to poison their own workers and others just because they are developing economies. The lax standards there do create opportunity for US business in the cleanup business, but the process of equilibrating through free trade would be easier with relatively uniform child labor, pollution and other measures. Presently, I believe it is just the transaction costs in getting to such agreements that preclude such conditions being imposed/expected relatively uniformly.

A stimulus check --it seems to be inevitable-- should be spent only on goods and services that meet such conditions. Then it would reward, to whatever extent possible, a safer economic recovery. So do not hire an illegal alien at less than union/minimum wages or buy foreign goods tainted by worker abuse.
1.22.2008 3:06am
M. Simon (mail) (www):
Tax cuts on business.

Or R&D.

Let business buy from the low cost supplier to make our goods more competitive on the world market.

If China wants to kill its people supplying out needs then that is their business. Let the people revolt (actually that is what they are doing: 30 million have quit the Chi Com party).
1.22.2008 7:39am
M. Simon (mail) (www):
What we need to do is tax the wealthy so much that they are discouraged from coming to America with their money and the wealthy we have are discouraged from investing.

Then things will get better.
1.22.2008 7:46am
M. Simon (mail) (www):
Robert Mugabe for Secretary of the Treasury.

Caesar Chavez for head of the Federal Reserve bank.

The average person in Zimbabwe is now worth millions. And to top it off their income looks to be increasing by 100s of millions a month.

He has created an economic miracle by depriving the rich of their property.

Mary is right. It could work here.
1.22.2008 8:07am
Crimso:

but there's currently a 35% tax

And 35<<90 (when the scale ranges from 0-100).


then you must pay US taxes for 10 years after leaving

How is that enforced? Surely there are ways around that.

Several years back, our state was considering reducing the sales tax and adding an income tax (ended up not happening). The thieves and liars we lovingly refer to as our legislature insisted that it was necessary. One of the central points of their argument was that it would help retain faculty at state-owned universities (though there was nothing in this plan that said anything about increasing salaries for faculty, or funding for universities in any way). They pitched it by noting that the majority of people would end up paying less taxes under the new system. As a faculty member who was earning slightly over 40k at the time, I estimated what my taxes would be under the new plan. It came out to be about $200 more EACH MONTH. My budget didn't have that much disposable income in it. Had it passed, I would have had no choice but to get another job, and I would have done so pointedly out of state. But hey, at least they could retain more faculty under the proposed plan...
1.22.2008 8:08am
David F. Petrano, Esq. (mail):
Below is my free book to everyone. It's titled:
"Make America Number One"

"Global Economics" is BAD FOR AMERICA
"Global Economics" = import the 3rd World to the USA and force us to do business just like the 3rd World!

3rd world =
slave and child labor
no pension plans
no worker's comp
no OSHA
no environmental laws to curb industrial waste
no ADA

At present, we in the USA have countless empty factories and a massive, anxious work-force ready to set-up shop in every city from Rochester to Memphis.

WE NEED TO IMMEDIATELY:

CUT OFF THE FOREIGN IMPORTS WITH HIGH IMPORT TAXES TO STOP OUT-SOURCING AND IMPORTING CHINA/INDIA/MEXICO GOODS

TRIGGER THE USA MANUFACTURING MACHINE

RETURN TO EISENHOWER-ERA 90% TAX-RATE ON TRUST-FUND BABIES AND MCMANSION DWELLERS TO PAY FOR A NEW INFRASTRUCTURE

CLOSE THE BORDERS AND INITIATE IMMEDIATE/ACTUAL DEPORTATION OF ALL ILLEGALS (we cannot allow millions of Mexicans working here and sending their $ back to Mexico).

IT IS A SIMPLE, STRAIGHT-FORWARD PLAN.
WE CAN NO LONGER AFFORD TO SUPPORT THE 3RD WORLD AT THE EXPENSE OF SHUTTING DOWN OUR OWN FACTORIES.

Deal with it boys and girls, the "trickle-down" and "globalization" experiment has proven to be a complete failure. Read today's headlines. The U.S. economy is tanking to such a level, we should be concerned in terms of national security.

General/President Eisenhower had the right plan. Tax you rich, worthless pieces of #hit at 90%. Granted, things will begin to sound/look like the farmer's kitchen in "Three Blind Mice" when the farmer's wife starts cutting off your tails with a carving knife. It is your future, and mine. I'm whistling the tune right now!
1.22.2008 3:25pm
Mary Katherine Day-Petrano (mail):
"MKDP:

Please note there is a big difference between the Chinese and the Huns or the horsemen out of Mongolia. Chinese were rpeatedly colonised by the Horsemen. Not that it excuses the lack of attention to the brush details." ---->

JustANut, thank you for setting me straight ... I think ...

I have done a lot of research on China, Mongolia, the Huns, and the whole great horseman thing while serving in the dungeons of the undergrad library on work study many years ago. Some of the available research charges the Chinese with imerialism on teh Huns; the Huns claim it is the other way around.

One excavated burial site in Mongolia from circa 3300 B.C. contained metal full-cheek twisted snaffle horse bits, thought by Europeans to be a much more modern invention, so whichever group lays claim to the greatness might tell us more about who imperialized whom.

I'm just sayin ...
1.22.2008 4:03pm
James Lindgren (mail):
Your idea has been mentioned on CNBC several times over the last month, and each time the speaker rejects it because the lead time is too long.

The engineering and architectual planning for a bridge project takes years before the real money gets spent when construction actually starts.

In short: Too slow, wouldn't work.
1.23.2008 10:48am