Editore"s Note
Tilting at Windmills

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January 20, 2008
By: Kevin Drum

TAX REBATES....Bruce Bartlett takes to the pages of the Wall Street Journal to warn us that while a one-shot tax rebate in April might make us all feel good, it won't actually stimulate the economy much because people are unlikely to spend more than a small portion of it. At least, that's what Milton Friedman argued when Gerald Ford tried a tax rebate during the 1974 recession:

[Friedman's] research had led him to conclude that consumer spending was less a function of liquidity than something he called "permanent income." Friedman observed that when workers lost their jobs, they didn't immediately cut back on spending. They borrowed or drew down savings to maintain spending, in the expectation of finding a new job shortly. Conversely, consumers didn't immediately spend windfalls. They kept spending on an even keel until they achieved a promotion at work, or other increase in their long-term income expectations.

....Subsequent studies by MIT economists Franco Modigliani and Charles Steindel, and Alan Blinder of Princeton, showed that Friedman's prediction was correct. The 1975 rebate had very little impact on spending and much less than a permanent tax cut — which would change peoples' concept of their permanent income — of similar magnitude.

The problem, of course, is that we can't cut taxes permanently every time we enter a recession. Pretty soon no taxes would be left — and while that might make Ron Paul happy, the rest of us would probably prefer to keep a functioning government on hand.

But why not try a compromise? Instead of, say, a one-shot rebate of $1,200, why not a monthly rebate against payroll taxes of $100 for 12 months? Add to that a 12-month boost to unemployment compensation, and you'd get a short term increase for everyone who works as well as for those temporarily idled by the recession.

Sure, a permanent increase might be psychologically superior, but knowing that you were going to get a steady stream of money for 12 months might prompt a little more spending confidence than a one-time windfall. Why not give it a try?

Kevin Drum 2:00 PM Permalink | Trackbacks | Comments (66)

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In that case, why not give every person in America a Visa gift card (or some equivalent) that expires in 3 months, whether or not the balance has been spent, and that cannot be converted (easily) into cash. Americans would be forced to spend and, if Keynes is right, the recession will be lessened.

Posted by: RWB on January 20, 2008 at 2:13 PM | PERMALINK

I don't get it. GWB has told us that BIG government is bad, that States' rights are paramount (look how that played out during Katrina!), but now he's wanting government to perform a bit of SOCIALISM and give folks more of their own money back.

Oh yeah, I forgot, the US military and the Dept of HS are tiny players as far as "the feds" go.

Is it possible that spending almost 2 trillion dollars on the Iraqistan debacle has actually HURT our economy? Which is strong, mind you, just in need of a stimulus. Unfortunately our president should've been arguing for this stimulus months ago. It's better to repair a hole in a sinking ship B4 the ship is underwater!

Posted by: Tom Nicholson on January 20, 2008 at 2:16 PM | PERMALINK

Instead of, say, a one-shot rebate of $1,200, why not a monthly rebate against payroll taxes of $100 for 12 months? ... Why not give it a try?

It might help poor people, so naturally Republicans would be opposed.

Posted by: F. Frederson on January 20, 2008 at 2:17 PM | PERMALINK

Kevin Drum >"...Why not give it a try?"

Because it is rational & sensible ?

"...it's the ideas that count, not the number of trees you kill to print them." - Phil Carter@Intel-dump.com

Posted by: daCascadian on January 20, 2008 at 2:18 PM | PERMALINK

Sending out 100,000,000 checks costs money. Doing it 12 times costs lots of money.

Anyhow, the notion that a recession caused by too much debt (about $43 trillion) relative to our ability to pay will be cured by borrowing $145 billion strikes me as more than a little cockeyed.

What can people do with $1000? Buy stuff, invest, or pay down debt.

Lot of the stuff bought will be imported. The losses in equities so far in the market downturn are in the trillions - won't make a dent. If who pay down debt aren't the ones on the edge of default, it won't even help the lenders.

Posted by: Downpuppy on January 20, 2008 at 2:21 PM | PERMALINK

Hey Downpuppy, where'd you get the $43 trillion figure? Because that seems, shall I say, a bit high.

Posted by: James Gary on January 20, 2008 at 2:25 PM | PERMALINK

If people are thinking long term, getting a smalish windfall means -oh look my cushion (savings) while still inadaquate is in a bit better shape. They will be a tad less fearful. A few will realise the government simply borrowed money, and gave it to them. And gee wizz maybe someday they will be after me to pay back their debt. I think I should save it to be ready for that day!

Posted by: bigTom on January 20, 2008 at 2:27 PM | PERMALINK

Why not give it a try? Because it won't work. No form of tax rebate is going to extract us from a recession. All it will accomplish is increase inflation further. More money printed for rebates will further lower the value of the dollar and continue driving up the price of oil and food.

We have been collectively living beyond our means, and now we have to pay the bill. It will be painful becuase the Fed and Treasury department encouraged cheap money policies and asset (housing) inflation to continue unabated over an extended period. We will have a recession until the excess liquidity is wrung out of the economy. Then things can get better.

The true beneficiaries of a tax rebate and the resulting inflation will be the financial industry because the debts they've run up will soon be held in inflated dollars (cheaper than the money in which they were created).

Of course, Congress will not let the administration out-pander them on the "stimulus package," so get ready for higher prices at the gas pump and in the supermarket.

Posted by: DevilDog on January 20, 2008 at 2:32 PM | PERMALINK

Why don't we just ask China to send money to everyone directly, instead of borrowing it from them first?

Posted by: Gore/Edwards 08 on January 20, 2008 at 2:35 PM | PERMALINK

Why not give the money to the states? That will help them with their very severe financial problems, and also will guarantee that the money will be spent rather than saved.

Posted by: Greg Arnold on January 20, 2008 at 2:36 PM | PERMALINK

I'm a little surprised that Bushco isn't proposing a six month reduction in the FICA tax or even waiving it for three months. People would love the money in their pocket, it would go to people who would spend it, it would be easy to implement, and people would be resistant to restoring it in three months.

Doing so would put Bushco one step closer to the annihilation of SS as we know it. So why would he not think it a great idea?

Posted by: PTate in MN on January 20, 2008 at 2:42 PM | PERMALINK

Helicopter Ben Bernanke wants some 150 billion more pumped into the banking system and drop hundreds of dollars into the publics hands.

That would increase the amounts of dollars in circulation which would further debase the dollar causing more inflation. The economists say the recession [thats here or soon to be here] is an inflationary one.

I say do nothing and stop bailing out bad behavior.

Posted by: Ya Know.... on January 20, 2008 at 2:42 PM | PERMALINK

A cut in payroll taxes will never happen b/c Republicans won't go for it.
Any cut or rebate with taxes is always outside the scope of payroll taxes in favor of capital gains.

Great idea though Kevin, too bad it won't get any considerable thought.

Posted by: Sandy on January 20, 2008 at 2:43 PM | PERMALINK

Thanks, Ya Know. Couldn't agree with you more. Unfortunately, politicians can't be seen doing nothing while constituents lose jobs, have their homes foreclosed, pay more of their income for commodities, etc. Our friends in Congress have to be seen giving away money to voters, even if it makes the situation worse.

And don't count on the "news' media to provide the public any insight into economics (as if they could). They will continue repeating whatever conventional wisdom Ben Bernanke, Bush and Hank Paulson spew out.

Posted by: DevilDog on January 20, 2008 at 2:52 PM | PERMALINK

Thx DD.

Hoover tried micro-managing the economy, due to inflationary recession, which led to the depression.

The government, I think, is doing exactly the wrong thing here and are likely to make things worse rather than better. I mean, just look at the fiascos in Iraq and Afghanistan they have created and how fiscally irresponsible they have been.

And now we should trust their stimulus schemes?

Baaa!

Posted by: Ya Know.... on January 20, 2008 at 3:03 PM | PERMALINK

The permanent income hypothesis crowd would still say this would not work all that well. This crowd would have it that the only effective aggregate demand management tools on the fiscal side are accelerations of government purchases and temporary investment tax credits. Of course, the moment anyone says increase government spending, the GOP crowd has a hissy fit.

Posted by: pgl on January 20, 2008 at 3:24 PM | PERMALINK

The American Middle Class has no more wealth. They cannot spend because there is nothing left to spend. A tax cut may feel good- and it is consistent with the tax-cuts-for-everything neoliberalism policies that only help the rich in the end- but it is like eating a Snickers bar to help chronic starvation.

As Robert Reich put it in the Financial Times:

The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then; the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is ending and Americans are beginning to feel the consequences.

The first coping mechanism was moving more women into paid work. (...) a second coping mechanism. The typical American now works two weeks more each year than he or she did 30 years ago. (...) As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began to borrow, big time.

Maybe someone work out some other kind of bubble to make everyone feel like they have money to spend, but that seems unlikely. Alan Greenspan tapped that shell game out. The alternative where labor captures more of the economic growth is unthinkable. Ideologically it is heresy and labor arbitrage, thanks neoliberalism, makes it impossible.

Posted by: bellumregio on January 20, 2008 at 3:24 PM | PERMALINK

Bruce Bartlett doesn't know what the hell he's talking about. Like it or not, Bush's $300/person rebate was found to have been successful, at least as far as consumer spending goes. 2 Princeton economists found that for workers on the lower end of the pay scale, nearly all of it was spent within 6 months.

Posted by: zoof on January 20, 2008 at 3:33 PM | PERMALINK

I agree with bellumregio..to a point. Frankly, the Middle Class has enough wealth but our demands and standards of living have risen way beyond our salaries. How many televisions does the average home have now? How many pairs of $100 sneakers have parents bought for whiny teenagers? How many people really needed two massive 30K SUV's to haul around their two kids and groceries? How many cell phones are in your home? How many MP3 players? How many computers? We Middle Class people can't afford our lifestyles and a tax cut isn't going change that.

Sad fact is that the only way to stimulate the economy is to loosen credit standards back up so that people can buy the glut of houses sitting on the market and keep refinancing their way to imagined wealth. $800 - $1200 isn't a whole lot of money for people who've gotten used to cash out refinances for 20 - 50k a pop. Living within your means is medicine that nobody wants to take.

Posted by: arteclectic on January 20, 2008 at 3:43 PM | PERMALINK

Hike the Fed Rate up to 12%, let the economy grind to a complete halt for a few months, install new lending regs, then cut the interest rate back down to 4%, and we'll be fine.

Posted by: lampwick on January 20, 2008 at 3:43 PM | PERMALINK

I'm almost afraid to say this, but isn't 600-1200 chump change? It's maybe 1 rent payment, or 2-4 car payments.

If I was unemployed (and i might well soon be so), it wouldn't rock my world; might add another week or three of solvency, at best.

Now, if you got up to the same level, as say the oil royalty checks for Alaskan residents, that might be a different story.

Posted by: Joe Bloggs on January 20, 2008 at 3:59 PM | PERMALINK

April? I was under the impression the checks wouldn't be arriving until July. Which, in my mind, is a little late.

Posted by: Goof Beyou on January 20, 2008 at 4:05 PM | PERMALINK

Two thoughts. First, from the commentary:

The 1975 rebate had very little impact on spending and much less than a permanent tax cut -- which would change peoples' concept of their permanent income -- of similar magnitude.

Is this really true? That is, a back-of-the-envelope computation shows that people were being given rebate checks for on the order of 1% of their annual income. My concept of my annual income doesn't change at that level of detail, at least enough to change my spending behavior, and I doubt I would even notice it if it were embedded somewhere in the tax code.

Second, on a permanent tax cut instead of rebates, I'd be afraid of a bait and switch. Will a permanent tax cut targeted largely at the rich really boost the economy?

Posted by: RSA on January 20, 2008 at 4:06 PM | PERMALINK

Joe bloggs, using the rebate to pay your rent and a couple car payments isn't going to do anything to stimulate the economy either. Nor will paying down debt, unless that is followed by spending your way back into the same hole. Long term, the problem is that our economy is based too much on shifting money around, and not enough on producing goods and services.

Posted by: dhp on January 20, 2008 at 4:11 PM | PERMALINK

dhp: Long term, the problem is that our economy is based too much on shifting money around, and not enough on producing goods and services.

Amen.

Posted by: DevilDog on January 20, 2008 at 4:17 PM | PERMALINK

Isn't cutting payroll taxes the same thing as cutting FICA? I wouldn't want that, even if it was temporary, as Kevin suggests, because then Bush would want to make it permanent. He'd sell it as "tax relief," and John Q. Public might buy it, not being smart enough to figure out that this "tax relief" would be the first step in destroying Social Security.

Posted by: pol on January 20, 2008 at 4:52 PM | PERMALINK

It seems to me that it would make more sense to extend unemployment benefits and establish some sort of agency to review the mortgage mess. A raise in the tax rate on the higher incomes would help by keeping the deficit as small as possible.
Unemployment benefits tend to be spent as fast as they are received and would provide the most assistance in the simplest manner and the quickest time.
A mortgage review agency would also have to work quickly, but it would provide some help to those simply needing refinancing to bring payments in line with their actual resources. Of course this would only apply to primary residences, so anyone in trouble because of attempting to "flip" houses wouldn't benefit. I don't know what the percentage of those in trouble would actually be, but even if it was only 20-25%, it could act as a firewall against a complete housing collapse.
And of course it isn't going to be easy to get any tax increase past the present mal-Administration, but that doesn't mean it shouldn't be tried. After all, weren't all those tax cuts supposed to keep the economy booming? Apparently the recipients weren't informed of their responsibilities.

Posted by: Doug on January 20, 2008 at 5:08 PM | PERMALINK

A better way to dump money into the economy would be to offer rebates for a portion of purchases that people would not have otherwise made. My preference would be the purchase and installation of energy efficient windows. In order to qualify people would have to spend more money than the rebate was worth, the long-term energy savings would translate into a real increase in income for the beneficiaries (which would increase their spending over time), and the installation would help create job opportunities in the construction sector, which has been hurt by the sudden decrease in home building. The best part is that most of the effects happen rather quickly. Just giving out cash could never do all of that.

Posted by: Mario on January 20, 2008 at 5:22 PM | PERMALINK

Is it possible the rebate will just wind up being a transfer payment from the US government to some creditors? Given that a certain percentage of the recipients might use that in a last-gasp effort to remain current on their mortgage, it certainly could be so. But, because I don't have the numbers handy, I don't know how much of the rebate would be a transfer payment.

That said, of the four criteria named in the Brookings pager on stimuli (timely, temporary, targeted and triggered), it seems to satisfy only the "temporary" part. Feh.

Posted by: Just Wondering on January 20, 2008 at 5:38 PM | PERMALINK

Why not make the government create more jobs instead? Let say you employ a certain amount of people in jobs at schools and hospitals, building roads et.c. Not only would the people getting those jobs, not being extremely wealthy, probably spend most of what they earn and thus put the money back into the economy, they would also contribute to the public good and return a good part of their slaries as tax.

All in all a much better investment for the money than tax cuts.

And before you all start talking about how scary, non-functional and socialist this sounds I'd better tell you that I live in Sweden where the minimum tax on salaries is 33% and living conditions among the best in the world.

Posted by: B on January 20, 2008 at 5:39 PM | PERMALINK

No one will really think of a payroll tax rebate, because then it would have to be, you know, A Rebate. The last such rebate we saw out of BushCo was a "prebate" -- an advance on your next year's tax refund. It was basically revenue neutral, while letting these idiots tell you they were giving you your money back. And, of course, taxpayers just lived with being hoodwinked.

The rush to talk about whatever checks are coming from the government as "rebates" seems pretty unseemly, since these guys have no record of giving away tax dollars to anyone but their cronies.

Posted by: cassandra m on January 20, 2008 at 5:56 PM | PERMALINK

Debt stats are from the Fed's Flow of funds reports - $31 trillion non-financial & $17 trillion other.

I used $43 T because I've seen it in various places - some of the debt needs to be backed out because its A=>B=>C, so you're counting the same thing twice.

http://www.federalreserve.gov/RELEASES/z1/Current/z1r-2.pdf

Posted by: Downpuppy on January 20, 2008 at 6:30 PM | PERMALINK

"Is it possible the rebate will just wind up being a transfer payment from the US government to some creditors?"

I thought that was what happened last time. Folks used the money to pay off their credit card bills.

Posted by: David in NY on January 20, 2008 at 7:25 PM | PERMALINK

"Bruce Bartlett doesn't know what the hell he's talking about. Like it or not, Bush's $300/person rebate was found to have been successful, at least as far as consumer spending goes. 2 Princeton economists found that for workers on the lower end of the pay scale, nearly all of it was spent within 6 months. -- zoof"

As between Bartlett and someone named zoof, I'll go with Bartlett. I had understood, as noted above, that the money got used to pay debt. Though, the weasel words may be "lower end of the pay scale," which, if it means folks without credit cards, would be pretty low. Anyhow, be happy to read a link to those Princeton guys, if there is one.

Posted by: David in NY on January 20, 2008 at 7:29 PM | PERMALINK

A raise in the tax rate on the higher incomes would help by keeping the deficit as small as possible.-Doug

Good one. What about a temporary tax rate hike on the top 10% from 33% > 50% and use 1/2 of the added revenue to reduce the budget deficit (which would tend to cool inflation), and use the other 1/2 as direct payments to states to extend UI?

Posted by: Doc at the Radar Station on January 20, 2008 at 7:50 PM | PERMALINK

Most people would use the rebate to make the minimum payments to their various debtors...

Posted by: RepubAnon on January 20, 2008 at 7:53 PM | PERMALINK

Problems with two issues here:
1) FICA/payroll rebates don't give a rebate to everyone. For instance, graduate students who are paid a taxable stipend are not subject to FICA (or COBRA health care, but that's another issue). Also, the currently unemployed, who could sure use a rebate.

2) energy efficient windows - only helps those who aren't rentors, or in public housing... need i go on?

Posted by: riptide on January 20, 2008 at 7:59 PM | PERMALINK

What is the most successful branding implemented by a NFL team, in terms of apparel sales?

The silver & black raider of the Oakland Raiders.

Posted by: paradox on January 20, 2008 at 8:32 PM | PERMALINK

Wait a minute. I thought that when people put money in a bank they were paid interest because the rich bank was pooling lots of small deposits and "spending" it in a way that spurred more economic growth via this pooling effect than the small amounts do on their own? Basically a bank will pay you two percent on your checking account because they are using the money to make ten percent more. I thought this was economic growth, and more importantly, trickle down growth, which according to conservatives is the best growth. Now don't you have to repudiate trickle down in order to argue giving money to losers like me to spur economic growth?

Posted by: flounder on January 20, 2008 at 8:37 PM | PERMALINK

flounder, They've not only repudiated trickle-down domestically here in the US, but they found out after they invaded Iraq that it didn't work either. Seems like ordinary folk having money in their pockets and something to do makes all the difference.

Posted by: Doc at the Radar Station on January 20, 2008 at 9:20 PM | PERMALINK

riptide;

The point of fiscal stimulus isn't to help people individually, the point is to boost the economy as a whole. And, of course, anyone who owns housing would be eligible, so anyone who uses housing could benefit, either through lower energy costs, which they themselves might pay, or through lower rent. Politicians, of course, are looking to give money to as many voters as possible, but that would be one reason why the fiscal stimulus that is eventually used will probably have little real effect.

Posted by: Mario on January 20, 2008 at 9:54 PM | PERMALINK

As between Bartlett and someone named zoof, I'll go with Bartlett.

LOL. Sorry, but Zoof wins.

Bartlett (irresponsibly) failed to report a terrific study conducted on the 2001 tax rebate. Bafflingly, Kevin didn't mention this.

http://www.nber.org/digest//apr05/w10784.html?tools=printit

"The authors find that "the average household spent 20-40 percent of its 2001 tax rebate on non-durable goods during the three-month period in which the rebate was received." Further, "[r]oughly two-thirds of the rebates were spent during the quarter of receipt and subsequent three-month period."

"...The timing and magnitude of this response is consistent with the rebate program playing a large role in counteracting the 2001 recession, which ended in the fourth quarter with strong growth in aggregate consumption."


What was great about the study is that they were able to work off a randomized trial, since the timing of checks varied with the last digit of the social security number.

Here's Salon's presentation:
http://www.salon.com/news/feature/2008/01/18/2008_recession/index1.html

Maybe these recent studies are misguided. But simply ignoring them is bad form.

Posted by: Measure for Measure on January 20, 2008 at 10:41 PM | PERMALINK

Why not write checks to people? That would ensure that the program is temporary. It would encourage spending. It would also be a step away from funding things through the tax code and toward greater transparency.

Posted by: Mark on January 20, 2008 at 11:00 PM | PERMALINK

Hey, wait a minute. Why is Bush suddenly talking about stimulating the economy? I thought it was an iron law that:
- the economy is great!
- government intervention in the economy is lame and pointless and something lefty traitors do
- there is no third law, but great ideas require triplets. Or is that tricycles.

So basically Bush is a liar and a hypocrite. Nobody could have predicted that.

Posted by: craigie on January 20, 2008 at 11:17 PM | PERMALINK

The best way to stimulate the economy is to give me 12 billion dollars. Then I'll show you motherfuckers some spending, goddammit!

Posted by: craigie on January 20, 2008 at 11:20 PM | PERMALINK

Well said, craigie...

Posted by: pol on January 20, 2008 at 11:26 PM | PERMALINK

Or, make it a long term tax cut for those whose spending is squeezed hard by present circumstances, combined with a short term tax rise for those squeezed softly or not at all.

Posted by: ferd on January 21, 2008 at 1:39 AM | PERMALINK

The problem is the R’s always want to cut taxes, whether the economy s booming, crashing, or anything in between. If Bush had raised taxes modestly while the economy was in good shape, the deficit would be smaller and we would be in a better position to have a meaningful tax cut to stimulate the economy. Cutting taxes when he didn’t need to has put Bush in the position where it is harder to cut them when we do need to.

Posted by: fafner1 on January 21, 2008 at 1:50 AM | PERMALINK

On a summer's day in the month of May,
A burly Bush come abikin'.
Down a shady lane through the sugar cane,
He was lookin' for his likin'.
As he rolled along he hummed a song
of the land of milk and honey,
Where a bum can stay for many a day,
And he won't pay any taxes.

Oh, the buzzin' of the bees in the cigarette trees,
Near the sody water fountain,
And the lemonade springs where the bluebird sings,
In the Big Rock Candy Mountain.

Posted by: Luther on January 21, 2008 at 2:47 AM | PERMALINK

Agree with Ferd.
Perhaps we can't simply lower taxes. But why not lower taxes on the working poor? It is they who suffer the greatest injustice in the skewed tax system, so why not cut their taxes exclusively, and provide the people who would most certainly spend newly available funds the chance to do so.

Posted by: Lee on January 21, 2008 at 6:08 AM | PERMALINK

This argument suggests that government should control inflation with tax increases instead of higher interest rates.

When the tax increase changes people's income expectations, they will cut back on spending.

So "permanent" tax cuts during recession, and "permanent" tax increases when inflation becomes a worry.

Since, you know, the tax cuts Bartlett would like to make "permanent" will in fact last forever. Not.

Posted by: R. Stanton Scott on January 21, 2008 at 7:31 AM | PERMALINK

Depressing whether rebate works or not : we have to give people some money so they'll hopefully walk zombie-like to the nearest strip mall and buy crap that they really don't need and almost certainly will not have been made in this country, that's what our economy has devolved to. It's pathetic.

Posted by: Oog on January 21, 2008 at 7:58 AM | PERMALINK

"Sure, a permanent increase might be psychologically superior"

Talk about an error! Tax rates should never be permanent.

Posted by: Matt on January 21, 2008 at 8:33 AM | PERMALINK

If a consumer pays off high credit card debt with that rebate check, its effects have not been wasted. Think about what happens next. The consumer pays less interest. The difference between what would have been spent on interest without the rebate check, and the reduced amount that is spent after the rebate is money jingling in the consumer's pocket every single month.

Remember, Bush didn't cut taxes. Because he increased spending by starting a needless war, he only deferred taxes. We're going to pay for Bush's borrowing every year from now until the end of time. Balancing the budget and paying down debt pays dividends every year forever.

Posted by: ownedByTwoCats on January 21, 2008 at 9:17 AM | PERMALINK

Sorry folks, there is no quick fix based on pumping imaginary money into an economy based on mass delusion.

This is not a minor 'speed bump' due to the popping of a housing bubble. This is the exhaustion of an unsustainable economic system.

Over the last 20 years real productivity was shipped overseas and unprecidented amounts of wealth transferred to Bush's bumper crop of billionaires. What little remains of consumer discretionary income is now going into $100 fill-ups and flowing to the coffers of Exxon-Mobil and Saudi Arabia.

Other countries who's economic systems are tied to the mirage of US prosperity are going to take the hit too.

CNNMoney (Monday morning): World markets plunge The U.K. benchmark FTSE-100 dropped 3.9 percent to 5,673.1; France's CAC-40 Index plunged 4.5 percent to 4,861.2, while Germany's slumped 5.35 percent to 6,922.7.

In Asia, India's benchmark stock index tumbled 7.4 percent, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent

Fasten your seat belts.

Posted by: Buford on January 21, 2008 at 10:08 AM | PERMALINK

ownedByTwoCats, that is true. The main object isn't to give people money to buy imported goods and go Sunday driving, it is to keep people from going bankrupt, losing their home, that sort of thing. What's needed is to buy time to prevent a cascade of bankruptcy and foreclosures that will ripple even further into employment levels, etc.

Posted by: Doc at the Radar Station on January 21, 2008 at 10:16 AM | PERMALINK

If they're thinking to rob Peter to pay Paul as some temporary band-aid to get us all spending, I just don't know how to address that kind of foolishness.

If they are stupid enough to give me some kind of tax rebate, you can be sure I'll throw that into an interest-earning account and leave it there.

I can't be the only one who would do that. Seeing as some of us have no savings accounts or assets, because we are living from one paycheck to the next, they're barking up the wrong tree if they think that pushing us to continue to spend beyond our means is a solution to Bush's having bankrupted the country.

Posted by: sara on January 21, 2008 at 11:02 AM | PERMALINK

One would be an idiot to spend even a 12 month period of "extra money" on googaws and knicknacks to boost the unsustainable consumer economy. The intelligent thing to do, which wouldn't do much to start the economy, would be to simply pay down one's debts as much as possible and skip the consumption.

I daresay that this is what would happen. A few morons would spend money on salad shooters and DVDs while most would pay off credit cards, pay off loans, etc. But then, maybe I give the bulk of people too much credit?

Posted by: Praedor Atrebates on January 21, 2008 at 12:10 PM | PERMALINK

Or, why not just let the recession work out the excesses that have built up so that we can have a recovery not built on the sand of temporary government largesse?

Posted by: Yancey Ward on January 21, 2008 at 1:11 PM | PERMALINK

The economic problem is too many foreclosures: enough to cause people to lose their jobs, which leads to more foreclosures, and the disaster multiplies.

So the economic stimulus should be a homeowner-based mortage bailout, combined with generous increases in unemployment compensation.

Posted by: Jalmari on January 21, 2008 at 7:30 PM | PERMALINK

I dont know too much about economic theory, but the idea that $800 or $1200 is going to fix our problems is far too little too late. Our goverment is already bankrupt, thanks to all of Georgie's freebies and the Iraq War (which is the real elephant in the room).
I dont think these sociopaths realize that they have spent the last 8 years killing off the goose. Because when you come down to it, it has always been the middle class that has really driven our economy. Now all of the cushions that we've used in the past against economic downturns aren't as widely available (like working wives, home equity, credit cards,etc). Anymore people arent using credit for "extras", but neccessities like food and gas. I have several friends and family facing foreclosure and/or bankruptcy. And these are people who, 10 yrs ago, had good jobs or businesses making $60k+. It doesnt take a genius to figure out something is wrong.
As hideous as it is to say, maybe Karl Marx wasnt too far off when he said that "eventually capitalism will consume itself".

Posted by: Getagripp on January 25, 2008 at 10:00 AM | PERMALINK

You mean there's still money left in the US treasury after 7 years of borrowing from foreigners?

I can only guess that this last bit of deficit spending is to make sure the next president can't revive America from its slow death by supply side economics.

After all, in a global economy, all labor must be equally cheap. The Chinese slaves are still envious. Mexicans are still coming across the border for work.

Don't get in the way of the great leveling, America.

Soon everyone the world over will be equal, except for our masters.

Posted by: Bokonon on January 26, 2008 at 12:53 AM | PERMALINK

Maybe actaully cutting taxes and not just speeding up refunds people would generally get next April 2009 would help.....oh yeah we can't do that because that would actually force the government to think about spending less and we know that won't work. Too many people out there with their hands out!!

Posted by: ldc on January 27, 2008 at 3:44 PM | PERMALINK

Just enact the fair tax.

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