You can read this article from the Washington Post. It's not a bad summary that highlights:
- The flaws in the "logic" of the stimulus package
- Why it won't work
- Why we wouldn't want it to work
The author is Steve Landsburg who is a professor of Economics at the University of Rochester. His summary is in synch with what I had been told by other Economics professors that I had stayed in-touch with since leaving college.
We seem to be a nation of short attention-spans and sound-bites. If we delve deeper into the whys and hows, we would probably be better citizens, and better-off economically.
Really? I had always thought that the stimulus should be good.
Well, I'm no professor of economics. But I know a thing or two, and I'm going to try to tell you how his article is wrong. In macroeconomics, there are many ways to look at a problem, and the final result really depends on which results are stronger and have a greater impact. I don't have any training in that area, but with my general economics, I can find a couple of other ways to look at what he is saying.
First of all, from the people here, it may seem that Friedman's
Permanent Income Hypothesis holds true, and the stimulus won't work. But I think that's due more to a higher
MPS. Which merely means that the stimulus may be less effective, but not ineffective. (See
Keynesian multiplier.) And this point addresses:
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Non-marginal tax cuts -- such as the ones in the stimulus package -- have exactly the opposite effect, when they have any effect at all.
The degree of the effect may be questionable, but I'm quite sure that it can't do any harm...and I'm absolutely sure that not everyone will be saving the money making it have a negative or zero effect.
Alright. Onto the rest of his article.
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Investment and consumption are natural rivals
.
It really doesn't matter. An increase in either increases
aggregate demand in the short run. And that helps to stave away recession.
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But even if you manage to pull this trick off, sooner or later you must tax Paul.
Basically he says that to pay for this stimulus, the government will have to increase taxes in the future. Which is true (unless they decide to cut back spending...very unlikely.) But really, his argument fails because I'm sure the council of economic advisers realizes that an active
Keynesian fiscal policy to help fix the recession now is better than just letting the economy slide down the tubes. And a part of sound fiscal policy during recession is not raising taxes. Furthermore, increased taxes during times of booms is perfectly fine as it helps to control inflation. So there's nothing wrong with taxes in the future.
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If you care about your grandchildren, you should be encouraging everyone else not to consume, but to save.
I hope that by "saving" he means "investment." Because "saving" is a leakage in the rGDP model. That just decreases rGDP and puts us more into recession. However, investment is good. The Fed with Bernanke is already doing all they can by slashing our interest rates to put more money into the economy and stimulate business investment spending.
Again, I don't see why Professor Landsburg thinks consumption is bad. CONSUMPTION IS GOOD. It increases our aggregate demand and rGDP and again keeps recession away. Furthermore, when we are not in recession, we can invest more in the future, which is exactly what Professor Landsburg wants.
Professor Landsburg makes good points, I just disagree with them.
