Man I wish our President would demonstrate that he has some notion of how economics works. I about strangled yesterday when I read this comment from him:
It’s very important for the Senate to finish their work quickly because the sooner we can get money into our consumers’ hands, the more likely it is, is that this economy will recover from this period of uncertainty.
The government doesn’t want us to bank that money or use it to pay off debts. It believes we will go out and spend the money, and that will make our houses worth a lot again. The idea is this: Say, for instance, I got $600, and I spent it on strippers. Those strippers would then buy clothes at Bebe, and the person who owns Bebe would buy the crappy house I overpaid for and get me out of the financial predicament caused by unscrupulous mortgage lenders and not by my addiction to strip joints.
This might soften the recession if Milton Friedman hadn’t proved 50 years ago that most people base spending decisions on long-term income projections. Only poor people immediately spend checks they get in the mail. And if there’s one thing I’m sure of, it’s that poor people aren’t going to save the economy. Also, if I know anything about the workings of the federal government, the process of writing and sending a $600 check is going to cost about $600.
President Bush, it ain’t gonna work. Priming the pump isn’t very useful when the well is dry. Until "produce and earn" replaces "borrow and spend", we aren’t going to "recover from this period of uncertainty- no matter how fast Congress cuts that check
[Thanks L for the link!]
There are quite a few problems with Mr. Stein’s thinking here. First off, the point of a stimulus package is not to save the housing market, it is to avoid or emeliorate a recession. He falsely equates the economy and the housing market, just as so many in the media have done ever since they stopped equating the economy and the stock market after the dotcom bust.
“And if there’s one thing I’m sure of, it’s that poor people aren’t going to save the economy.” I’d like some sort of evidence for this statement please. This is exactly the kind of thinking that got us into this mess for the last 8 years. Somehow all that matters in America is taking care of the rich, and they will hire the rest of us to wash their cars (in our g-strings from Bebe’s I suppose) and pull the weeds from their estates, and all will be well. He even makes a Ronald Reagan type crack similar to the Cadillac driving welfare queens.
I for one would have a lot more confidence in the efficacy of rebates to the poor and working classes to stimulate the economy by stuffing their rebates into g-strings bought from Bebe’s than anything this bozo has in mind. But the reality is that the Senate stimulus package is short on stimulus (especially to the poor) and long on hand outs to the politically powerful. But Mr. Stein can’t resist the opportunity to smear the poor.
TC-
I don’t believe that the point is that the poor don’t matter. I think the point is that we can’t just spend our way out of this one.
I heard a gentleman once- I don’t remember his name, but at the time, he had been named “Black Entrepreneur of the Year”, and he made an interesting point. He said that governments should subsidize the things they want to encourage, and tax the things they want to discourage. So why do we tax income and subsidize welfare? He said if we really wanted to help less affluent communities, we should invest in making them producers, not consumers.
The interviewer said “Where will the money for this come from?” He said, “We can either invest in people to make them producers, or we can pay to keep them in prison or on welfare.”
Poor people are not in a position to save the economy- they just don’t have the clout. When they can get an education, a job, a business opportunity and work their way out of poverty, that’s when they can make an economic difference- to themselves and the rest of us.
For that reason, I agree with Stein. It’s not bashing the poor, it’s stating an unfortunate fact.
What if we, the check recipients, collectively decided to bank our government checks? What would THAT do for the economy?
IMHO, we need an economy that is a lot less dependent on consumer spending. How about one with more saving and investment?
BTW, my Igor-feeding word is “moronic.”
Poorer, and maybe less educated people may be more likely to vote republican. I see the rebate as a vote-buying technique, the rest of the deal is just plain groupthink and the idiots rule theory.
I’ve got money to spend, I’m just not spending it until Bush is out of office.
The sad fact is that people making $60,000 a year are not poor,but in todays spend crazy,max out your cards,and blame others for you problems society,nothing short of a beating will get people to change.We will see this again.20 years from now.These “checks”wont change anything,and besides,we wont see them until the end of summer.
Poorer,and less educated typicaly vote democrate.We have certainly seen educated people,who are not poor,do stupid things.What I refer to is this housing crunch.I am glad that people have money to spend.those of us that didnt buy in this market are a very small percentage of the whole country.Not all of us are highly educated,or wealthy,what we have is commonsense.
Poorer,and less educated typicaly vote democrate
If the poor vote democratic, why is the poor south and midwest voting for Republicans, while the rich coasts vote Democratic?
I think you’ve got it backwards.
I thought I’d recomment on my previous entry with this graph.
http://en.wikipedia.org/wiki/Image:2004_votes_by_income.svg
It seems to show that the 50k-150k income brackets won the election for Bush, probably both times. The lower income brackets still vote republican aplenty, why I do not know.
No,I dont have it backwards.That is how the “poor and uneducated” statisticaly vote.Dont shoot the messenger.I dont make up the info.Yes,some “poor” vote repulican,and some rich vote democrate.I just follow statistics.I am just an average american,like many,that try very hard to have an open mind and see things for what they are,not what I would like them to be.
“Poor people aren’t going to save the economy” is an old supply-sider line. I remember a Republican Congressional leader (can’t remember which) debating the Clinton tax reform in the mid-’90s with the line: “I’ve never heard of a poor person hiring anyone.” In his world, rich people create jobs, and if they pay lower taxes, they’ll create more jobs.
In the meantime, nobody behind this stimulus bill seems to be calling it what it is. It’s not a “tax rebate.” All the taxes are already committed and then some. This is a loan. With the government already running deficits, every dollar of the “stimulus” will have to be paid back with interest. And if we couldn’t reduce our debt during the bull economy of 2002-2007, when could we?
As for “poor and uneducated vote Democratic/Republican,” both are wrong. People’s voting tendencies rely on many demographic factors. If you look at poor white people in Alabama vs. poor black people in the District of Columbia, you’ll find almost no similarities.
It’s uneducated to try to stereotype one party or the other as being the choice of the “uneducated.”
TC -
I for one, would have a lot more confidence in not giving tax rebates to people that don’t pay taxes. Call me crazy.
While I agree the stimulus package will do absolutely nothing to impact the housing disaster (doom?), don’t be mistaken, the primary objective of the Bush Administration / Treasury / Fed / Wall St is to stop the hemorrhaging from the commercial and residential real estate sectors.
The Fed has more effect on the economy and dropping Fed Funds to 0% won’t change much now. If you look at GDP and overall consumer spending, $150 billion is a drop of water in the ocean. So then, why bother? Well, because they’re politicians doing what politicans do - making a bunch of noise and acting like they’re going to help. This is an election year after all.
There is an excellent assertion within part of the article that Twist did not excerpt simply stating that if govt really wanted everyone to have that money immediately, they could temporarily change tax witholding rules for employers/employees with less taken out (subsequently accounted for on the 1040 with an exemption of the reduction in taxes paid). Hmmmmm……
Additionally, I don’t know what prompted your class-warfarish comments, but facts are hard to dispute, and the following should serve as proper rebuttal.
From: Institute for Research on Poverty
http://www.irp.wisc.edu/faqs/faq3.htm
“National poverty data are calculated using the official Census definition of poverty, which has remained fairly standard since it was introduced in the 1960s and is useful for measuring progress against poverty. Under this definition, poverty is determined by comparing pretax cash income with the poverty threshold, which adjusts for family size and composition. 1 In 2006, according to the official measure, 36.5 million people, 12.3 percent of the total U.S. population, lived in poverty.”
Let’s then multiply the poverty rate (12.3%) against the total tax rebates ($150 B). $18.5 Billion would be the amount that the poor would have to spend (if they were even to proportionately receive the rebates which they won’t).
You can diatribe all you want, but THAT WILL DO NOTHING FOR THE ECONOMY. I’m sure we’ll see another investment bank over the next couple of weeks that will have a write-down close to or exceeding that.
This rebate is a joke. This will be paid back ten fold by subsequent generations. What we need to do is get out of Iraq now and stop giving tax rebates to companies that out- source US jobs.
WARNING Political content many of you will hate.
Successful politicians know that they can’t sit back and appear to do nothing when the American public is concerned about an important issue. This means that they will do what politicians in this country do best. Pretend to solve the problem by creating a visable smoke screen that accomplishes little or nothing. The best example of this is what happened to the last two presidents that faced runaway inflation.
After OPEC caused the first wave of inflation Nixon imposed nationwide wage price controls to “fight inflation”. Despite government control of every price and salary throughout the economy inflation continued to run it’s course because companies were able to get around the controls by repackaging or creating “new” products. His actions did nothing to combat the real problem which was OPEC’s ability to inflict crippiling price increases on us. But Nixon got reelected partly because he was seen to have acted on a problem that affected every American.
OPEC hit us again at the end of the Ford administration and Carter inherited the problem. He was a lousy politician, he allowed the economy to seek it’s own level and to this day is still blamed for the “horrible inflation of the Carter years”. Instead of pandering with a meaningless publicity stunt to “fight inflation” he went about solving the real problem we faced. His energy program took away OPEC’s ability to control the price of oil for about 30 years. If the alternative energy and conservation programs he started had not been gutted and abandoned by his successor we wouldn’t be in the energy mess we are in today.
I find it funny that the Conservative Republican Nixon was rewarded for his massive big government manipulation of the economy and Carter the Liberal Democrat is still despised for his free market approach to the short term affects of same problem.
The point of all of this is that we WILL get the idiotic $500 or $600 checks in the mail a few months before the election because our politicians have learned from history and they care more about reelection than doing what is right for the country.
I wasnt trying to offend or start an aruement.If I am inncorrect I apologize.Doesnt the south swing towards democrates.Dont the rich vote republican.I know these are generalizations,but I didnt use these examples to be offensive.Again my apologies.
No question this ’stimulus’ won’t work, even if you spend it on strippers. It just isn’t big enough, and in a deflationary environment, people will hoard money, rather than spend it. That’s called a ‘liquidity trap,’ and one of those things that happened in the Great Depression.
The thing that amazes me, is the panic here. There have been other declines in the stock market, other recessions. But a point and a quarter cut in a week, AND a ’spend it all’ stimulus package? Absolutely amazing. We’re NOT even in a recession yet!!
And poor people DO spend money faster than wealthy folks, if that matters. Their money velocity is faster… so if you’re going to fashion a REAL stimulus package, you need to include the poor… NOT just weapons engineers.
FWIW.
It’s good to see the discontent on both sides of the partisan fence. I will admit that most of my views swing WAY to the right.
However, I am angry that this fake stimulus garbage is going to take place and I can do nothing about it. We (our country) have much better places to spend our money. Perhaps just saving some money we don’t have or haven’t printed yet might help. If we continue to act like idiots and cover the backsides of the people who allowed this all to continue to occur (current and past administrations), we will only prolong the issues.
I am not saying this was a malicious manipulation. However, it is something that a lot of people saw coming and we could have acted proactively instead of having to bail water. It’s kind of like trying to boil the ocean at this point….too little, too late.
Yes, I will spend (invest) the money just like everyone else. However, I will (and have) write anyone willing to listen voicing my discontent for the financial irresponsibility of this whole mess. If I can have a microscopic influence on some politician that will continue to do the wrong things because he/she believes it is popular opinion, I will have succeeded. If not, it helps with my control issues.
We have a Government (Democrat & Republican) that will attempt to appeal to the mass public regardless of their political affiliation because it simply earns them and their party votes.
It does not matter at this point whether it was the bank or the borrower. The damage is done and we will get exactly what we had yesterday if we do nothing different today. I know that this is all very idealistic, but I think the only way for us to fix this mess is to stop putting band-aid’s on our problems that require amputations. Like many, many issues looming today, we did not create the problem in a day. We are not going to fix the problem in a day or in a completely pleasant manner.
If a university professor can produce hydrogen fuel for a vehicle and make it run well at 3 - 6 cents a gallon inclusive, why can’t big oil or even some government funded program at 145 billion? Because it’s about money….. Theirs.
Formertitleguy-
We have a Government (Democrat & Republican) that will attempt to appeal to the mass public regardless of their political affiliation because it simply earns them and their party votes.
That’s why I think it’s so important to show them that we, the mass public, are opposed to these bailouts.
One of the interesting thing about the world of blogging is looking at our logs. I can’t tell you which individuals come by, but I can often tell you what server they come in on. I was surprised to see that Doom is visited nearly daily by a wide variety of government offices- federal, foreign and local.
Since I don’t know what individual is coming by, I have no way of knowing if it’s a congressman who’s on trying to check a wide variety of sources on housing, or if some low-level clerk is worried about their ARM resetting. I like to think that maybe that are politicians aren’t ALL idiots- that some of them stop by the blogs to see what John Q. Public is thinking.
Granted we’re a more bearish crowd here than most, but the surveys show that most Americans don’t like the bailouts either- SO CONGRESS, TAKE NOTE!
Folks:
The government is NOT “attempting to appeal to the mass public” They are trying to DISTRACT the mass public.
The system works in favor of those who pay for it overtly.. large ‘monied incorporations’, in T. Jefferson’s words.
But, if we pay common people pennies… they’ll
pretend to believe us when we proclaim the system isn’t rigged.
PS - Oregon has a ‘kicker’ law… to return ’surplus’ state money to people (and corporations). Cost to process 1.1 billion dollars, and mail checks…. was a mere 23 million dollars, which included interest charges.
Twist,
Or perhaps government monitors this blog and others to identify subversive activity. One just never knows in this day and age. I supose I’m just being paranoid but then again.
Bruce-
That thought has occurred to me, but I’m not quite paranoid enough to think that Fannie Mae, the SEC and some of the others that stop by would be in on it.
Almost, but not quite.
Twist,
At this stage we are hardly a thorn in their side. Mostly they see us as laughable grumblers without a political base and no threat to “Business as Usual”. But they no doubt have an eye to the future and would stop at nothing to qwell a truly popular movement. That’s when they lower the boom, right Igor?
Well, here is my final word.
http://money.cnn.com/2008/02/04/news/economy/rebates_uschina/index.htm?postversion=2008020416
The experts say 3 cents on the dollar will go to china, although it’s likely we will borrow the rebate money from china and pay interest to china, or whoever we borrow it from.
Apparently it costs 97 cents on the dollar for product research and development, marketing, and distribution.
Buying imports supports our service-sector based economy, which is where the higher paying jobs are?
I just don’t hardly believe anything stated in this CNN article.
Toysarefun-
Mr. Twist has been importing plastics from Asia for many years. I asked him to calculate what stays in the U.S. on a typical container he imports. He says that about 60% goes to Asia, and the rest stays in the U.S. That percentage of course, will vary depending on what is being imported, but I don’t buy the 3 cents number.