OK, I have to start this with a disclaimer: I am not, nor will I ever be, an economist and anything stated in here resembling economics is purely coincidental.
It has become quiet, but for a while our Congress and Senate were sniping at each other about an “economic stimulus” package. And listening to the rhetoric was becoming a bit tiresome. So here I am adding to it!
Basically the two sides were claiming they knew how to stimulate the economy. On the Democratic side, stimulating the economy meant spending more money on programs aimed at displaced workers and low-income families. The idea was that if these people spend money, it will stimulate the economy. On the Republican side, stimulus meant giving tax breaks to companies. This would allow companies to be able to afford more investment and provide jobs. And, of course, both sides were very good at claiming the other had it all wrong.
This is just the sort of partisan bickering that makes great short-term press and does not solve any real problems. It is quite simple – both sides are correct. Either one of the two methods will boost the economy.
This can be seen since either one will increase the amount of deficit the federal government runs, which means we are pumping extra dollars into the economy by borrowing them from our future. This has been done before and is (in my non-economically trained mind) a valid way of dealing with a short-term problem. But we must remember it has a cost and, therefore, plan on dealing with that as well.
This leaves us with three choices:
- one, weather this economy without resorting to a stimulus
- two, give tax breaks to business
- three, give support for displaced workers and low-income families.
Starting with the third, providing support for laid-off workers to bring them closer to the salaries they used to earn will keep them spending money and mitigate the drop in retail sales. This is good as long as we expect a recovery soon. If the recovery does not come, then we are faced with either stopping the support or running up larger deficits than we can really afford in the future.
Giving tax breaks to companies would allow companies to invest more and, therefore, potentially create more jobs. However, companies typically invest money for the largest payoff. If their customers do not have the money to buy, they are unlikely to invest in jobs that will still lose money. This would also lead to more deficits if the downturn is extended.
Of course, if we believe it will be a short downturn, then a stimulus package may not be necessary and would keep us from adding to the deficit spending that is likely to occur over the next several years.
If we do want to implement one of the two plans, we need to make sure that it is temporary and that its effects would occur in the fastest time.
I am always a bit pessimistic of Congress giving a “temporary” fiscal policy change. However, I find myself optimistic about the economic recovery and do not see a need for a stimulus.
A Madman has spoken…