Wednesday, February 4, 2009

The Government: Spender of Last Resort

The past week's news about the economic stimulus plan has really started to irk me to a level I have not seen since a certain VP candidate was on all the talk shows remarking on our proximity to Russia. It seems that Congress is involved in a big game of chicken, and the only ones who are going to get hurt are the "everyday Americans" (note: I don't even know what that phrase means, but everyone uses it so I thought why not?). Why do I think we're headed to an even bigger disaster? Read this article from salon.com to get a taste as to why if the economic stimulus doesn't actually spend money and instead just cuts taxes we'll be an even bigger lurch. Actually, you don't even have to do that just think about what you did last year, when the feds gave you $300 to stimulate the economy. What did most of us do? Well those of us who needed the money used it to pay off some debt or put it into savings. Nowadays, $300 isn't a lot towards big ticket items such as big screen TVs or cars, the two industries really hurting these days.

Tax cuts don't work to stimulate the economy. Should we have tax cuts if the government isn't using the money or doesn't need it? Yes of course. Especially when we've balanced the budget. But in times of extreme deficit, how are tax cuts going to help? Another suggestion was there needs to be tax incentives for small businesses to hire people. Hmm...if businesses need to hire someone to be more productive they will. How will hiring a person they don't need to receive a tax break help their overall bottom line? If there is no demand for the service/product you sell why would you expand capacity?!

I'm sorry I'm in such a rant right now, but it would behoove the majority of politicians and pundits to sit down and read an Economics 101 book, particularly focusing on macroeconomics. Once you realize the magic equation of GDP=C+I+G+(X-M) it becomes painfully obvious that if C (consumption) is non-existent and I (investment) is in the toilet, and you're in a huge trade deficit (X-M). The only variable that can be changed is G (government spending)! Any 1st year Econ student can tell you that government investment in the economy has A LOT more bang for its buck than redistribution of wealth via tax cuts. And when no one is buying, the spender of last resort is guess who...Uncle Sam.

2 comments:

betsey said...

Just read this and of course, thought of you.

http://www.slate.com/id/2210570/

ben.coria said...
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