Friday, February 06, 2009

Over-stimulated...

It's been hard to post about the stimulus package as the target has been moving, but a few thoughts have popped up.
  1. It may just be my perception, but the folks who are not crazy about stimulus spending compared to tax cuts have a large overlap with folks who say Americans need to save more.  Isn't this counterproductive or mildly hypocritical?  The only thing worse than poorly spent stimulus money is unspent stimulus money. A tax cut right now would, like the last stimulus effort, likely be mostly tucked away in anxious consumer savings or paying down debt, I think.  In essence, tax-cutters are counting on consumers' ignoring their own counsel.  In fact, ask yourself what you would do with an extra $1000.
  2. Looking at results from previous recessions is perfectly valid, but isn't is also possible the consumer response to a tax cut will be different due to the much deeper current of fear around the world right now? With an entire globe nervous and countries - not just companies - failing, I know I am more concerned about this recession than previous downturns in my experience.
  3. Calling everything except tax cuts "pork" isn't helpful.  And even pork isn't pork if it's your pork. A significant portion of the stimulus is transfer payments to mitigate the effects of unemployment: extended unemployment benefits, food stamps, etc.  Even economists who think government spending to revive consumption a bad idea don't oppose these payments.
  4. Suddenly a mystery of how Pres. Hoover so badly mismanaged his response when he was superbly qualified for the job is partially explained. The basic instinct right now to hoard and avoid debt is the same today as then.
  5. Although job losses are not necessarily accelerating, the social effects could as ripples of family-friend connections fan out across almost every sector. Encouraging consumption is not going to get easier, I'll bet.
  6. I believe the urgency of stimulus to be the lesser of two evils compared to the possibility of wasteful spending.  Besides, I've always wondered if any spending - government or personal - is ever 100% efficient.
  7. Many who claim we are destroying the future with stimulus deficit spending could have been more useful had they spoken up meaningfully say, 8 years ago.  Imagine if we still had a surplus budget instead of a six-year war to contend with.
The wide range of strongly held positions on stimulus ideas testifies, I believe, to the anxiety pandemic in our citizens. Debate under these circumstances is very difficult, and frankly, I'm amazed it's proceeding as well as it is.

5 comments:

buffalobill said...

something i have noticed about tax cuts...they always sound better than the reality. some how or other tax cuts only benefit a few rather than the many. this is partially due to the fact the more taxes one pays the more the tax cut benefits. it does seem to me however, that getting money in the hands of the many would be the better approach. Bill

Brandon said...

Isn't there a significant difference in a true across the board tax rate cut and stimulus check? Especially a payroll tax cut that would affect nearly every American worker? If we did a payroll tax cut like they are kicking around, and people had an extra 50 bucks every pay cycle I think you would see a lot more spending than if we just did rebate checks. That was what was wrong with last summer's stimulus. Most people either saved it or used it to buy expensive gasoline.

John Phipps said...

buff/brandon:

Gentlemen, I really don't know where the optimal stimulus is. What I believe is folks are more worried than I have ever seen - and that includes serious economists who would never otherwise sanction actions like we are contemplating.

That makes me suspect depending on the consumer to spend won't work until the recovery has been underway some time.

The key point I wanted to make was for each of us to say "What would it take for me to start a new business right now? Or buy a car/house/sofa?"

Or to bring it closer to home, if I was given a tax break would I bid more for a three year lease on ground nearby?

To be sure, the lowest levels of our economy will spend new money just to keep body and soul together. Giving money to poor people almost always raises their spending. But the savings rate for the rest of us is climbing, and I don't see that altering until our confidence is restored.

From Virginia said...

investment tax credits would do more to stimulate the economy than simple tax cuts. If you were given a 25 or 30% tax credit for new equipment purchased in 2009, wouldn't you consider replacing some equipment?

John Phipps said...

VA:

Don't have an good answer to your question. We have been preparing to stop capital purchases while we transition the farm to my son, so unless we expand (a constant hope) we really don't need much more "stuff".

Would other farmers? I suspect we are already over-machined at the top end described in the new census distribution, and those machines possess unused capacity.

Hog operations, which used ITC in a big way likely would not expand.

I am sure there would be some response, but again my read of the mood is the multiplier would be severely dampened by the fear factor.