Wednesday, January 30, 2008

Regarding the Santa Claus/Tooth Fairy effect of the "stimulus" package

Professor Williams tells us the "how" and the "why" of it.


"If we are headed into a recession, these proposed stimulus packages will make little difference. Previous experiences have shown that (1) it takes a long time to enact tax law, making it too late to prevent a recession, and (2) many people save a large portion of any tax rebate. A far more important measure that Congress can take towards a healthy economy is to insure that the 2003 tax cuts don't expire in 2010 as scheduled. If not, there are 15 separate taxes scheduled to rise in 2010, costing Americans $200 billion a year in increased taxes.

Adding to the economic effects of that tax increase are the disincentive effects of the measures that Americans will take between now and then in anticipation of those tax increases. According to economists Tracy Foertsch and Ralph Rector, making the 2003 tax cuts permanent will annually add $76 billion to the GDP, create 709,000 jobs and add $200 billion to personal income.

The call for stimulus packages represents the triumph of political arrogance over common sense. The U.S. is a massive $14 trillion economy. The size of proposed stimulus packages range from $150 to $200 billion, which is about 1 to 2 percent of our GDP. Economy-wide, that's a drop in the bucket likely to have little or no effect. Congress ought to focus on measures that create greater long-term productive incentives such as reducing corporate taxes, estate taxes and personal income taxes as well as economic deregulation."

Here's Professor Sowell's take:


"People who went way out on a limb to buy a house that they could not afford are now being pictured as victims of a heartless market or deceptive lenders.

Just a few years ago, people who went out on that limb made money big-time in a skyrocketing housing market. But now that they have been caught in the ups and downs that markets have gone through for centuries, the government is supposed to bail them out.

Solving short-run problems, especially in an election year, often means creating long-run problems. Pumping money into the economy can help many problems. but do not be surprised if it also leads to inflationary pressures and financial repercussions around the world."

That's just good, common sense economic advice, the kind that's rarely found on a national media scale, and virtually nowhere to be found on a certain local source in our blahgosphere.


  1. Bubba:

    The posts are contradictory. According to Williams, the stimulus is a drop in the bucket and won't make much difference one way or the other.

    However, Sowell is saying that it might have terrible inflationary and financial repercussions.

    Well, it's one or the other. Either this thing is big enough to matter or it isn't. Once you decide that, please tell us which one of these you believe. Until then you are just grasping at any negative argument that you can find.

    Also, if you really believe Sowell's position that deficits are bad (a position that you've been loathe to defend in other contexts), it means that Williams' argument about making the tax cuts permanent and adding hundreds of billions of dollars to the deficits is anathema.

    Again, find one of these positions that you like and then stick to it. In the meantime, the rest of us will wait...

  2. "Well, it's one or the other. Either this thing is big enough to matter or it isn't. Once you decide that, please tell us which one of these you believe."

    Hey Dave........haven't you ever heard of "competing ideas" in the intellectual and academic arenas?

    Did you never have to debate opposing ideas in an academic environment when you were coming through school?

    Is that not something encouraged in your particular corner of the Ivory Tower?

    Or is that concept just too complex for your to get your head around?

    And only someone like you would make the argument that tax cuts automatically translates into adding "billions of dollars to the deficit".

    Again, do a little better thought process with your subject matter, and come back again with an open mind when you're better prepared.

    You may be able to get away with that sort of thing over at Cone's, but you won't get any sympathy here.

    P. S.: I don't recall expressing a strong opinion either way on deficits.

  3. Oh, one other thing, Dave.

    Professor Williams' comment was this:

    "If we are headed into a recession, these proposed stimulus packages will make little difference."

    That clearly referred to the stimulus in the context of staving off a recession. It's not quite the "contradictory" statement to Professor Sowell's remarks that you asserted, is it?

    Again, come better prepared for class and save us both the need to go over previously covered material.

    You'll be better for the effort, I promise you.

  4. On another subject, Dr. Guarino and I were wondering if you overlooked our comments on this thread.

  5. At most, only one of these posts can be right. Each is arguing from contradictory premises. Either the package is big enough to matter or it isn't.

    Also, if deficits are inflationary, William's advice is super-inflationary.

    Either way, one (and quite possibly both) of these posts are wrong.

  6. "At most, only one of these posts can be right."

    The only thing that's not right is your analysis, which I attribute to your combination of miscomprehension and plain stubbornness.

  7. Two contradictory analyses can't both be right.

  8. "Two contradictory analyses can't both be right."

    Absolutely correct, Dave. That's why I pointed out the error in your anaysis.

    As I have demonstrated, Professors Williams' and Sowell's pieces do not fall into that category.

    Be prepared to discuss these facts on the finals, Dave.