Stimulus doesn't work, but tax breaks for the rich do?

[A Christian Sceptic]

Amazing!

You're telling us that the “Cash for Clunkers” scam did not destroy wealth, and then accusing me of “deliberate and willful falsehood”?

Destroying wealth is exactly what the “Cash for Clunkers” scam did. That was its purpose, its intent, and its effect. Every car that was destroyed under this fraudulent, outrageous scam, left the economy poorer by the value of that car in addition to the value of the labor and resources used to destroy it.

Only through “deliberate and willful falsehood” could you or anyone else possibly claim that it did otherwise.

Yeah - but destroying these cars stopped the pollution.

 

[A Christian Sceptic]

The government taxes to pay for things that are needed by everyone but not e adequately funded otherwise. that's it's job. It takes money people would have spent on something else and spends it on things like roads, military, education, and yes even a better economy...

And grants for studies on genital washing in Africa.

Just saying ...

 

[A Christian Sceptic]

What if the destrcution of those cars results in a net savings?

How many people paid for their cash for clunkers car with cash?

 

[A Christian Sceptic]

And you're ignoring what's most important of all, which is the ability to buy things other than windows. Broken windows typically necessitate replacing, which means less discretionary spending. I dont much care whether a new window is marginally better than an old one, because I'd rather spend the money on a new computer, or almost anything else.

Maybe the government should pay the unemployed to go around breaking all the windows of all the employed people so they can stimulate the window industry. And if people don't buy new windows and for some subborn reason decide to not replace the hole in their house the window-breakers should then maybe move up according to some sort of ladder system - maybe steal and total their car or heck, maybe even burn down their house.

I also think that maybe the government should temporarily make counterfeiting legal - but only for the unemployed, of course.

 

[Corsair 115]

Yeah - but destroying these cars stopped the pollution.

Should one take the above to mean that there are no negative enconomic effects caused by pollution?

 

[A Christian Sceptic]

Should one take the above to mean that there are no negative enconomic effects caused by pollution?

Nope. It was however one of the main arguments for why they were doing Cash For Clunkers.

 

[drkitten]

The government has to subsidize the baker at the expense of someone else. There is no free peanut butter and jelly sandwhich.

Econ 101 says you're wrong. Look up "comparative advantage." The baker can bake bread more cheaply than either you or I can, which means that we can buy his bread (at a profit to him) more cheaply than we can bake it ourselves. We can even pay the tax necessary to let him start up his business, knowing that he'll be paying that back out of the taxes he pays from HIS business.

or in other words, "economics is not zero sum."

I'd like to see the thread on the Cash-For-Clunkers to learn how having me and other tax payers pay the down payment for new cars for other people and thus nudge them into buying a new car instead of maybe the old car they were going to buy instead (or any of the other items they were going to buy instead of the new car) and then demolishing the cars traded in didn't destroy wealth somewhere along the line.

Well, you know where the search function is. Or you could google "creative destruction."

 

[A Christian Sceptic]

Econ 101 says you're wrong. Look up "comparative advantage." The baker can bake bread more cheaply than either you or I can, which means that we can buy his bread (at a profit to him) more cheaply than we can bake it ourselves. We can even pay the tax necessary to let him start up his business, knowing that he'll be paying that back out of the taxes he pays from HIS business.

Tell that to Peter who did not want the bread, jelly or the peanut butter and who now can not buy the bread, jelly or peanut but instead wanted a pizza. He can't buy the pizza now because he's just subsidized the baker.

The Baker, the Jelly guy and the Peanut butter guy are as happy as pickles because at the expense of Peter (and the Pizza man) they've all profitted.

 

[drkitten]

Tell that to Peter who did not want the bread, jelly or the peanut butter and who now can not buy the bread, jelly or peanut but instead wanted a pizza. He can't buy the pizza now because he's just subsidized the baker.

Actually, he probably can. The baker, the jelly guy, and the peanut butter guy all have more disposable income as a result of this operation, and they'll spend more money on pizza.

The Pizza guy now has four customers instead of one, and can start supplying pizzas more cheaply due to volume discounts on his materials. So the effect of this stimulus is that Peter has cheaper pizza as well.

Or, more simply, "economics is not zero-sum."

 

[ServiceSoon]

While we were talking about the direct effects of changing the marginal income tax rate on individuals, we can talk about this instead. The simple fact is that rich people are not reliable as spenders, your article is pretty clear about that. Poor people are very reliable. If I gave my babysitter a 100% raise I still doubt she would have ten dollars at the end of the week. She is poor and will spend every dime she has. The rich are not as reliable, read you link.

Are you trying to confuse me this early in the conversation? Shame on you My link is about which social class accounts for the largest amount of consumer spending. The rich are individuals. You know that anecdotal observations aren't allowed. I think the middle class is more keen on saving and reducing debt. Meanwhile the rich have money to spend.

Actually we do know: the rich will save slightly less money. It is really that simple.

Except the article says "In recent months, the wealthiest Americans apparently have been driving an even more disproportionate share of consumption. According to estimates from Economy.com, they've also contributed an outsized share of the corresponding decline in saving, which has worried some analysts and policymakers. "

I'm just saying that you speak with such a high level of certainty that isn't possible. A tax increase for any social class should be off the table at this time.

Even if your statement was true, you have to remember that there are a lot of people in our economy that wouldn't agree with you, and they will hamper the recover if you take the steps you want to take. It's going to take a positive effort by more than 50% of the population to make this recover happen.

And you misread my sentence about the CFO, but we'll let is slide for now.

The tax decision that's made now will shape the decision the CFO's (wink) make in the coming months. Do you really think that the owner of a company is going to give the workers a raise when s/he taxes have been increased?

I actually think you miss-typed your sentence, but I'll let it slide for now

 

[ServiceSoon]

Maybe the government should pay the unemployed to go around breaking all the windows of all the employed people so they can stimulate the window industry. And if people don't buy new windows and for some subborn reason decide to not replace the hole in their house the window-breakers should then maybe move up according to some sort of ladder system - maybe steal and total their car or heck, maybe even burn down their house.

I also think that maybe the government should temporarily make counterfeiting legal - but only for the unemployed, of course.

You forgot to add that the government should make a rule that if the windows aren't fixed in a certain amount of time then fines will be levied. It's only fair because my lack of windows affects my neighbors property value. It also decreases the efficiency of my hvac, thereby increasing global warming. Besides, the revenue generated form such a program could be spent researching the migrating habits of John Jacob's spirit. Those hired workers will spend their money on cable TV so they can watch Ghost Hunters, etc, etc, etc.

 

[Emperor_Gestahl]

Or, more simply, "economics is not zero-sum."

No it's not but being above zero-sum overall doesn't necessarily mean it will be like that for most of the population. If I make 100 dollars and 99 people lose 1 dollar that's a net positive but wow am I a dick.

(Edit: I mean that wouldn't seem good to damn near anyone, yet mathematically it's "good for the whole" by creating 1 more dollar.)

 

[drkitten]

No it's not but being above zero-sum overall doesn't necessarily mean it will be like that for most of the population. If I make 100 dollars and 99 people lose 1 dollar that's a net positive but wow am I a dick.

(Edit: I mean that wouldn't seem good to damn near anyone, yet mathematically it's "good for the whole" by creating 1 more dollar.)

True. But the economic data shows that CfC didn't work like that. (And it's actually hard to design a "stimulus" package that would work like that....)

 

[uruk]

If I have $19K sitting in a savings account accruing little interest, will $300 in tax cuts make a difference to me?

If I need to buy something that costs $300, it doesn't matter whether I have $19000 in the bank or $19300. If I have $19000 in the bank and someone sends me a check for $300, it doesn't motivate me to spend any more.

However, if my checking account is running on pins and needles already, I don't have a savings account, and I am putting off buying something, then that $300 makes a HUGE difference, and I can make great use of it.

You don't need to be rich with money in tax shelters to not utilize a tax cut.

The point of money sitting in a bank is that it gets circulated in the economy via loans and investments. If a huge amount of money is sitting in an off shore account for the sole purpose of not being taxed, that money gets taken out of the economy. The economy suffers because of it.

 

[Tippit]

Another transparent econ 101 lie.

Money circulates. The other people who benefited were those in a position to indirectly profit from the increased sales of automobiles. For example, the increased sales of automobiles directly helped the salesmen at the auto dealerships, who made more money. Because they made more money, they were able to afford to buy PS3 games for their children and new back-to-school clothes; this helped games retailers and manufacturers as well as clothing manufacturers. The clothing manufacturers were then able to go out and buy flowers for their wives anniversaries, which helped the florists and flower growers.

While this is true, it does not offset the costs bourne by taxpayers to fund the scam in the first place. All of the benefits you cited (and more, absent the government's capital mismanagement fee) would have accrued normally, had everyone been able to keep and spend their own money in the first place. This should be obvious, unfortunately it apparently isn't to you.

And so it goes. A ripple spreads to all corners of the pond. That's the whole point of an economic stimulus.

No, the premise behind stimulus is that if you don't want to spend your own money on what the government thinks you should spend it on, the government will take it from you and spend it as it dictates. The ripple in the pond is the side effect of the entire water level being lowered to begin with.

And you can see that effect by looking at the quarterly GDP for the USA over the relevant period; GDP shot up dramatically during Q3 of 2009, but has stayed positive every quarter since then (in dramatic contrast with "the longest recession since the 1930s," where we experienced negative quarter-over-quarter growth for a year.)

And yet, GDP says nothing about standard of living, or the equitability of wealth distribution, as evident by the sky high real unemployment rate.

Nope. A net gain. Another transparent lie.

As usual, you're the only one lying. Your willfully myopic view completely ignores the total costs of all government action, whether by direct tax or the inflation tax. According to you, stimulus money grows on trees.

 

[drkitten]

While this is true, it does not offset the costs bourne by taxpayers to fund the scam in the first place.

That depends if the economic growth produced by the program is greater than the costs. That's an empirical question, and one that has been rather firmly answered by subsequent events.

All of the benefits you cited (and more, absent the government's capital mismanagement fee) would have accrued normally,

Really? You have a control universe to demonstrate this in?

Because every competent economist disagrees. The whole point of CfC and similar stimulus programs was to provide an incentive for people to spend, because people weren't spending.

As usual, the easiest way to demonstrate that I'm right is by reading the reasons Tippit thinks I'm wrong.

 

[drkitten]

The point of money sitting in a bank is that it gets circulated in the economy via loans and investments.

Under normal circumstances, it would be circulating. But the conditions in Q2 2009 weren't normal, and in particular, bank lending and investments were way down.

So money sitting in a bank wasn't getting circulated, which is why the stimulus was necessary in the first place. The people who had excess money were simply saving it (as opposed to spending it); the banks that had excess money were holding it in cash instead of lending it out.

Giving more money to the people who didn't need it would have just ended up sending it to the bank to sit there; subsidizing part of the purchase of goods instead encouraged people to dig into their own resources to purchase the rest, forcing consumption instead of savings.

Since the problem was an excess of savings over consumption, discouraging savings and encouraging consumption worked beautifully.

 

[A Christian Sceptic]

Since the problem was an excess of savings over consumption, discouraging savings and encouraging consumption worked beautifully.

By worked ... do you mean it worked in encouraging people to spend and not save, correct?

The whole point of CfC and similar stimulus programs was to provide an incentive for people to spend, because people weren't spending.

I thought it was to save the environment.

It was called Cash For Clunkers not Cash For Stimulating.

Although real clunkers were exempt from the whole program. So - more accurately Cash For Certain Clunkers.

 

[drkitten]

By worked ... do you mean it worked in encouraging people to spend and not save, correct?

That is correct.

I thought it was to save the environment.

Well, you thought wrong; the primary purpose was as a stimulus, and specifically "to increase automotive sales."

Read the CARS report if you like.

The CARS program achieved the objectives set out by Congress to increase automotive sales and aid the environment. In just a few short weeks of sales, nearly 680,000 older vehicles were replaced by new, more fuel-efficient vehicles. The nation’s economy benefited immediately from this stimulus program, which caused a distinct upward movement in GDP and created or saved tens of thousands of jobs at a very critical time in the recovery process.

Because of the unanticipated strength of consumer response, the program led to a sharp decline in dealer inventories and caused several major automakers to increase production schedules through the end of 2009, leading to an increase in employment and GDP in the fourth quarter as well.

In fact, it appears to have led to an increase in GDP in every quarter since then, although that wasn't known to the authors of the CARS report at the time, of course.


Of course, there are also long-term environmental benefits as well.

The environment will benefit over the longer term because operation
of the new vehicles in place of the trade-ins will reduce oil consumption and emissions of
carbon dioxide and related greenhouse gases over the next 25 years.

No one said that a project couldn't address several needs at once.

 

[Bob Blaylock]

Read the CARS report if you like.

Big surprise here—the same criminals who imposed this massive, fraudulent scam upon the American people, embezzling and squandering billions of taxpayer dollars on it, have put out a report to explain how this scam “helped” us. And it's no wonder that someone foolish enough to have been taken in by the original scam is also foolish enough to believe the scammers when they try to justify it.

P.T. Barnum was right. Or at least he would have been if he had actually said the famous quote that is popularly attributed to him.