Why the stimulus tax rebate package is a shitty idea
The first of the rebate checks have gone out, here's a couple pespectives, from an economic standpoint, as to why they may be a good idea, but mostly are a shitty idea.
Why they are a good idea:
Banks make their money many ways. One of these ways is through investing and lending the money that we deposit into their bank for safekeeping. As a regulation imposed by the Federal Reserve banks must at all times carry at least 10% of all the funds that regular people like you and I have deposited into accounts. That means every dollar we choose to save has the ability to generate extra income for the bank through various investments and those investments can generate even more money, which means those who earn that money can put that money in the bank and 10% of that money can be reinvested into the economy. It turns into a cycle where money is generated, albeit at a decreasing rate, over the transformation of deposits->Savings->investments->earnings->deposits.
So, in the simple terms, the money can generate economic activity that can grow on its own. Or, on the other hand, the money can be spent by consumers on various (the current administration also advised we continue to spend and consume after the events of 9/11) goods. During these harder times that can simply bolster or at least hope to maintain levels of demand for many goods.
Why they are a shitty idea:
Most of the money that is created through investments is earned through various security markets(stocks, portfolios), loans, and things of that sort. It relies on these "secondary" markets to actually generate the new money, and these are fairly far removed from everyday Americans. The majority do not engage actively in capital markets. Most of the new money generated goes to stimulate the economy, but few regular Americans will be able to benefit from it.
From a behavioral economics standpoint most people don't save "found" money. In other words, incidental increases in wealth aren't necessarily met by more savings, but rather by incidental increases in consumption. I get $800 back from the Govt, I go out and buy new fluevogs or a Wii. Except that Wii and those fluevogs are made by international companies and my money then goes abroad instead of staying at home in the US.
In the end, a sudden tax break from the government (much like the tax holiday proposed by the Clinton and McCain camps) are a superficial and shallow approach to fixing a deep and very long-term problem. Much of the current recession has been a long time coming and would require severe changes in how business in the US is done.
Why they are a good idea:
Banks make their money many ways. One of these ways is through investing and lending the money that we deposit into their bank for safekeeping. As a regulation imposed by the Federal Reserve banks must at all times carry at least 10% of all the funds that regular people like you and I have deposited into accounts. That means every dollar we choose to save has the ability to generate extra income for the bank through various investments and those investments can generate even more money, which means those who earn that money can put that money in the bank and 10% of that money can be reinvested into the economy. It turns into a cycle where money is generated, albeit at a decreasing rate, over the transformation of deposits->Savings->investments->earnings->deposits.
So, in the simple terms, the money can generate economic activity that can grow on its own. Or, on the other hand, the money can be spent by consumers on various (the current administration also advised we continue to spend and consume after the events of 9/11) goods. During these harder times that can simply bolster or at least hope to maintain levels of demand for many goods.
Why they are a shitty idea:
Most of the money that is created through investments is earned through various security markets(stocks, portfolios), loans, and things of that sort. It relies on these "secondary" markets to actually generate the new money, and these are fairly far removed from everyday Americans. The majority do not engage actively in capital markets. Most of the new money generated goes to stimulate the economy, but few regular Americans will be able to benefit from it.
From a behavioral economics standpoint most people don't save "found" money. In other words, incidental increases in wealth aren't necessarily met by more savings, but rather by incidental increases in consumption. I get $800 back from the Govt, I go out and buy new fluevogs or a Wii. Except that Wii and those fluevogs are made by international companies and my money then goes abroad instead of staying at home in the US.
In the end, a sudden tax break from the government (much like the tax holiday proposed by the Clinton and McCain camps) are a superficial and shallow approach to fixing a deep and very long-term problem. Much of the current recession has been a long time coming and would require severe changes in how business in the US is done.