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Friday, January 25, 2008

The Great Money Give Away

The so called economic stimulus package negotiated by the President, John Boehner and Nancy Pelosi isn't looking so certain, now the the Senate has it's hands on it.

First though, a couple of things about the general idea of the economic stimulus package; it's not needed, and even if it were, it's misdirected at any type of sustained growth.

The only folks in the real business world licking their chops at this package are the makers of one time big purchases. You'll see tons of big screen TV's computers, etc, getting bought when the checks come out. Probably 70% of the people getting the money won't use it in a way that actually has lasting effects. Those TV makers though, they're probably going to be happy with their 3rd quarter numbers this year.

Why do I say it's not needed? Well we aren't in a recession, and even if we were to slip into one, most of the actual economic indicators point to a short (1-2 quarter) one with little effect. The GDP grew last quarter at a 2% annual rate, not spectacular, but far from the negative growth that recessions bring. Inflation, while slightly higher last quarter is tame due to interest rates being low. Unemployment, while it's gone up slightly (5%) is still lower than the 6% that's been considered "full employment" since the end of WWII.

Why do I think the package is misdirected? Tax cuts, rather than one shot rebates do more to sustain economic growth in the long term. Don't believe it, look at the last 6 years. Look at the data from the last 30 years, in fact. The biggest growth occurs in the periods taxes are cut, the least growth, and most recessions, in periods when they are raised.

Back to the original idea of the post, though. The package negotiated by Bush, Pelosi and Boehner had one linchpin, it was centered on a tax rebate. However, the AARP is complaining that over 50% of the folks aged 65 and over won't get any of the money. Duh, they don't pay taxes. It's hard to give a rebate on something you didn't pay for. Hell, send in the mail in form and try and $200 from HP without actually buying the laptop. They won't give it to you.

Other groups are complaining they won't get anything either. Unions want unemployment benefits extended as part of the deal, the northeast Senators want home heating oil rebates. The Senate, is of course entertaining all of these ideas, and my well kill the whole package because they are trying to turn a tax rebate into the Great Money Give Away of 2008. I won't cry if they do, because of the reasons I stated above.

The ironic thing about this whole stimulus idea is that the Democrats are pushing hardest for it, and it undermines their whole taxing philosphy. If, as the stimulus idea would suggest, giving people money helps the economy, why give one shot tax rebates? Wouldn't it work as well, or even better, if you just let them keep it in the first place?

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