Your $600 rebate

Well, getting $600 apiece has its charms. According to this report, a deal has been struck in Congress that will give each taxpayer $600, plus $300 per child. A family of four would thus get $1800. (Earlier versions would have given $800 to taxpayers, but this agreed-upon plan is a little less so as to give $300 to those who pay no taxes.) The checks will be cut between May and July. The cost will be some $150 billion, about the cost of an average year in Iraq. But it IS our money, after all, just given back. Yes, getting that check will be nice, but is it a good idea?

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • http://gpiper.org/katiesbeer Theresa K.

    I think its a reasonable idea if we all spend it in some way. I am not counting on the money, nor asking for it, but if we receive $1800 we will most likely spend it on a vacation (one that we would not have taken otherwise). Lutheran high school tuition cut out our yearly summer driving trip a couple of years ago- good trade off, of course!

  • http://gpiper.org/katiesbeer Theresa K.

    I think its a reasonable idea if we all spend it in some way. I am not counting on the money, nor asking for it, but if we receive $1800 we will most likely spend it on a vacation (one that we would not have taken otherwise). Lutheran high school tuition cut out our yearly summer driving trip a couple of years ago- good trade off, of course!

  • fw

    Where are the republicans asking if Iraq is going to bankrupt us?

    Is it within our means to continue in Iraq and so maybe we don´t have a choice?

    Is it too unthinkable to republicans that perhaps even america has true constraints and limitations that dictate what we can or can´t do independent of wishful thinking?

    Or would this be “defeatist” thinking rather than practical, prudent and common sensical?

  • fw

    Where are the republicans asking if Iraq is going to bankrupt us?

    Is it within our means to continue in Iraq and so maybe we don´t have a choice?

    Is it too unthinkable to republicans that perhaps even america has true constraints and limitations that dictate what we can or can´t do independent of wishful thinking?

    Or would this be “defeatist” thinking rather than practical, prudent and common sensical?

  • Rose

    This money is being charged to my grandchildren. If I get any money back, I’ll save it for them. However, I think my rebate is going to illegal aliens.

  • Rose

    This money is being charged to my grandchildren. If I get any money back, I’ll save it for them. However, I think my rebate is going to illegal aliens.

  • http://necessaryroughness.org Dan at Necessary Roughness

    There are several things to note. First, since they are giving money to people who didn’t pay taxes, it can’t be called a rebate. “Handout” might be more accurate. Robbing Peter to pay Paul is also accurate in some cases.

    Secondly, they don’t expect us to do the wise thing and actually save money. They want it spent. If you save the money or put it towards credit cards, there’s no stimulative effect. The government telling us what to do with our money should find a rebellious wrinkle in us somewhere.

    Third, it would be much faster if we could instead not pay that amount in taxes. That way we wouldn’t have to write a tax check, wait sixty days, and then get a check back. The money would be available to us now.

    Fourth, it’s not accompanied by a cut in spending (Iraq or otherwise), which racks up more government debt and makes the dollar a less valuable thing to have, eventually.

    I don’t mind my money back. It should have never left, and government shouldn’t have spent it. :)

  • http://necessaryroughness.org Dan at Necessary Roughness

    There are several things to note. First, since they are giving money to people who didn’t pay taxes, it can’t be called a rebate. “Handout” might be more accurate. Robbing Peter to pay Paul is also accurate in some cases.

    Secondly, they don’t expect us to do the wise thing and actually save money. They want it spent. If you save the money or put it towards credit cards, there’s no stimulative effect. The government telling us what to do with our money should find a rebellious wrinkle in us somewhere.

    Third, it would be much faster if we could instead not pay that amount in taxes. That way we wouldn’t have to write a tax check, wait sixty days, and then get a check back. The money would be available to us now.

    Fourth, it’s not accompanied by a cut in spending (Iraq or otherwise), which racks up more government debt and makes the dollar a less valuable thing to have, eventually.

    I don’t mind my money back. It should have never left, and government shouldn’t have spent it. :)

  • EconJeff

    Probably not. Estimates of economic growth are for very low growth (~.4 percent) in the first two quarters of this year and the over 2 percent in the third and fourth quarters. Because the checks probably won’t arrive until closer to the 3rd quarter, they might not make much of a difference in terms of the overall economy.

    This type of fiscal policy is standard Keynsian economics: Increase gov’t spending in a recession (note: we are not in a recession (yet)) and decrease gov’t spending during high growth (note: when does gov’t actually cut spending?). The reason why it needs to go those who do not pay taxes is because they have a high marginal propensity to consume–they are more likely to spend it, thus creating jobs right now (as opposed to saving it, which may create jobs later).

    Of course, that only works if you are a Keynsian…

    For me, I’ll just view it as a temporary reduction in taxes (yay Republicans!) and a temporary increase in gov’t spending (yay Democrats!) which, if something is going to be done, I prefer to the other policies proposed: increasing food stamps (unlikely to decrease in the future) and increased time on unemployment insurance (also unlikely to be reduced).

  • EconJeff

    Probably not. Estimates of economic growth are for very low growth (~.4 percent) in the first two quarters of this year and the over 2 percent in the third and fourth quarters. Because the checks probably won’t arrive until closer to the 3rd quarter, they might not make much of a difference in terms of the overall economy.

    This type of fiscal policy is standard Keynsian economics: Increase gov’t spending in a recession (note: we are not in a recession (yet)) and decrease gov’t spending during high growth (note: when does gov’t actually cut spending?). The reason why it needs to go those who do not pay taxes is because they have a high marginal propensity to consume–they are more likely to spend it, thus creating jobs right now (as opposed to saving it, which may create jobs later).

    Of course, that only works if you are a Keynsian…

    For me, I’ll just view it as a temporary reduction in taxes (yay Republicans!) and a temporary increase in gov’t spending (yay Democrats!) which, if something is going to be done, I prefer to the other policies proposed: increasing food stamps (unlikely to decrease in the future) and increased time on unemployment insurance (also unlikely to be reduced).

  • S Bauer

    If the analysis I read in the business section of the Rocky Mountain News is correct, this is in no way a rebate, if it is to be structured the way the last “rebate” to stimulate the economy was. It is simply an “advance” on your tax refund for 2008. You won’t hear any politician (or even the IRS) say this without resort to, (uh, what does the Bush White House call it?) enhanced interrogation techniques.

  • S Bauer

    If the analysis I read in the business section of the Rocky Mountain News is correct, this is in no way a rebate, if it is to be structured the way the last “rebate” to stimulate the economy was. It is simply an “advance” on your tax refund for 2008. You won’t hear any politician (or even the IRS) say this without resort to, (uh, what does the Bush White House call it?) enhanced interrogation techniques.

  • Don S

    It is most certainly not a rebate. Those singles who make more than $75,000, and couples who make more than $150,000 do not get it, and they pay the lion’s share of the taxes. Others who pay not federal taxes, and, in fact, received “earned income tax credits”, will receive the “rebate”. It is blatant income redistribution/welfare handout and is pandering of the worst sort in an election year, and by both parties.

    Other than that, I like it.

  • Don S

    It is most certainly not a rebate. Those singles who make more than $75,000, and couples who make more than $150,000 do not get it, and they pay the lion’s share of the taxes. Others who pay not federal taxes, and, in fact, received “earned income tax credits”, will receive the “rebate”. It is blatant income redistribution/welfare handout and is pandering of the worst sort in an election year, and by both parties.

    Other than that, I like it.

  • http://www.bikebubba.blogspot.com Bike Bubba

    I’m at a loss about how taking money from prosperous people and investors overseas, and giving it to my family, is going to stimulate the economy. Is my spending more effective at helping the economy than a rich person’s? If I invest a few hundred bucks in my IRA, is that really more effective than a rich person investing the same amount in his investment accounts?

    Say what?

  • http://www.bikebubba.blogspot.com Bike Bubba

    I’m at a loss about how taking money from prosperous people and investors overseas, and giving it to my family, is going to stimulate the economy. Is my spending more effective at helping the economy than a rich person’s? If I invest a few hundred bucks in my IRA, is that really more effective than a rich person investing the same amount in his investment accounts?

    Say what?

  • http://www.cockahoop.com/ tODD

    I’m using mine to buy a pony for a circus! And maybe some bread!

  • http://www.cockahoop.com/ tODD

    I’m using mine to buy a pony for a circus! And maybe some bread!

  • EconJeff

    Bike Bubba:

    The multiplier effect of the poor spending money is greater than that of the rich because the poor will spend more of it and the rich will spend less of it. So while there is a loss from a rich person who can’t spend as much, the gain from the poor person spending yields a net gain.

    It’s not that your spending is more effective at helping the economy, it’s that you are more likey to spend the money.

  • EconJeff

    Bike Bubba:

    The multiplier effect of the poor spending money is greater than that of the rich because the poor will spend more of it and the rich will spend less of it. So while there is a loss from a rich person who can’t spend as much, the gain from the poor person spending yields a net gain.

    It’s not that your spending is more effective at helping the economy, it’s that you are more likey to spend the money.

  • Don S

    “Econ”Jeff — I think that you are the only one actually buying the stated rationale that the “rebates” are “targeted” to lower income people because there is a greater “multiplier effect” due to their spending. The real reason, we all know, is the class warfare that pervades our government today, and is the reason why almost all tax deductions and credits phase out for higher income people. Democrats will not tolerate seeing the “rich” getting any kind of benefit from tax policy. Their fair share is “more, more, more”.

    As to the supposition that people having incomes over $75,000 (single) or $150,000 (couples) are all madly saving their money, and those below those thresholds are all spending every dime, that is laughable too. A two income family making $175,000 and having 3 or 4 kids at home, particularly if 1 or more are in college, typically spend most or all of their money. On the other hand, a retired couple having $130,000 in annual income is most likely saving a significant portion of that income. If the goal were truly to ensure that the rebates were spent, rather than saved, then the breakdown should have been based on age of the taxpayer (e. g. ages 18-49, who are in the “acquisition stage” of their lives, get the “rebate”, ages 50 and over, who are now fully in the savings mode, do not). Don’t hold your breath to see that happen.

    In fact, the kind of increased spending which we are likely to see from those of relatively low income is not particularly helpful to stimulate the economy. Much of it will be spend on increased purchases of staples, like food and gasoline, which are not particularly stimulative, as both commodities are already somewhat in shortage and inflationary anyway. The increased spending for these items will most likely simply increase inflationary pressures.

    And what’s so bad about saving anyway? What is so great and stimulative about consumer overspending? One of our current big problems is the collapse of the stock market currently, and its resultant drag on consumer confidence because of a feeling of loss of wealth. Were these “rebates” to be invested in bargain-priced stocks, the resultant market rebound may be as stimulative as anything else to be accomplished using these funds this year.

    Just wanted to clarify this program for what it is — a simple, straightforward election year pander. Any other explanation is simply putting lipstick on a pig.

  • Don S

    “Econ”Jeff — I think that you are the only one actually buying the stated rationale that the “rebates” are “targeted” to lower income people because there is a greater “multiplier effect” due to their spending. The real reason, we all know, is the class warfare that pervades our government today, and is the reason why almost all tax deductions and credits phase out for higher income people. Democrats will not tolerate seeing the “rich” getting any kind of benefit from tax policy. Their fair share is “more, more, more”.

    As to the supposition that people having incomes over $75,000 (single) or $150,000 (couples) are all madly saving their money, and those below those thresholds are all spending every dime, that is laughable too. A two income family making $175,000 and having 3 or 4 kids at home, particularly if 1 or more are in college, typically spend most or all of their money. On the other hand, a retired couple having $130,000 in annual income is most likely saving a significant portion of that income. If the goal were truly to ensure that the rebates were spent, rather than saved, then the breakdown should have been based on age of the taxpayer (e. g. ages 18-49, who are in the “acquisition stage” of their lives, get the “rebate”, ages 50 and over, who are now fully in the savings mode, do not). Don’t hold your breath to see that happen.

    In fact, the kind of increased spending which we are likely to see from those of relatively low income is not particularly helpful to stimulate the economy. Much of it will be spend on increased purchases of staples, like food and gasoline, which are not particularly stimulative, as both commodities are already somewhat in shortage and inflationary anyway. The increased spending for these items will most likely simply increase inflationary pressures.

    And what’s so bad about saving anyway? What is so great and stimulative about consumer overspending? One of our current big problems is the collapse of the stock market currently, and its resultant drag on consumer confidence because of a feeling of loss of wealth. Were these “rebates” to be invested in bargain-priced stocks, the resultant market rebound may be as stimulative as anything else to be accomplished using these funds this year.

    Just wanted to clarify this program for what it is — a simple, straightforward election year pander. Any other explanation is simply putting lipstick on a pig.

  • Patrick Kyle

    A couple of observations.

    I gree with Don S. that this is election year pandering at its worst. Furthermore, it is a tacit admission by the government(even the Democrats) that less taxation is good for the economy.

    The economy is probably in a whole lot of trouble. When is the last time you have ever seen our government act with such speed and unanimity? What do they see that the average American doesn’t?
    Also I think the “stimulus package” is a band-aid on a bullet wound. Giving everyone a few hundred bucks isn’t going to assuage the damage caused by years of abusive use of credit by consumers and mismanagement by government and banks.

  • Patrick Kyle

    A couple of observations.

    I gree with Don S. that this is election year pandering at its worst. Furthermore, it is a tacit admission by the government(even the Democrats) that less taxation is good for the economy.

    The economy is probably in a whole lot of trouble. When is the last time you have ever seen our government act with such speed and unanimity? What do they see that the average American doesn’t?
    Also I think the “stimulus package” is a band-aid on a bullet wound. Giving everyone a few hundred bucks isn’t going to assuage the damage caused by years of abusive use of credit by consumers and mismanagement by government and banks.

  • http://www.krisandsusanna.com Kristofer Carlson

    The so-called stimulus package is a sham. First, it presumes that $150 Billion makes a dent in a multi-Trillion dollar economy. Second, it takes money from one part of the economy and dumps it on another. One pundit described this as taking a bucket of water from the deep end of the pool and emptying it in the shallow end. Because some of the water sloshed out of the bucket when carrying it to the shallow end (administrative overhead) the pool is actually slightly shallower than before. Basically the government will have to sell an additional $150 Billion in bonds to finance this, which will reduce the cost of the bonds and increase the interest earned. There is no free lunch. The only hope for the government is that inflation will take care of the difference; that the dollars paid back to investors will be worth less than the cost of the bond plus interest.

  • http://www.krisandsusanna.com Kristofer Carlson

    The so-called stimulus package is a sham. First, it presumes that $150 Billion makes a dent in a multi-Trillion dollar economy. Second, it takes money from one part of the economy and dumps it on another. One pundit described this as taking a bucket of water from the deep end of the pool and emptying it in the shallow end. Because some of the water sloshed out of the bucket when carrying it to the shallow end (administrative overhead) the pool is actually slightly shallower than before. Basically the government will have to sell an additional $150 Billion in bonds to finance this, which will reduce the cost of the bonds and increase the interest earned. There is no free lunch. The only hope for the government is that inflation will take care of the difference; that the dollars paid back to investors will be worth less than the cost of the bond plus interest.

  • EconJeff

    Don “S.”-

    If you’ll take another look at my first post here, you’ll see that I was simply explaining why this is supposed to work. As I am not a Keynesian, I really don’t think this will work. I actually think this package is pandering to a bunch of whiners, especially in the mortgage market, who lost a bet and want their money back. I agree with
    Patrick Kyle that has been caused by “years of abusive use of credit by consumers and mismanagement by government and banks” and with Kristofer Carlson that this will only come back and bite us in the behind in the form of higher taxes.

    The reason why this type of pandering works, however, is because it is based on an economic theory which has been the foundation of government fiscal policy for the past 50-70 years.

    I will not talk about class warfare, if you believe in it fine, then you can see the world through that lens. Your supposition, though, that the poor spend primarily on staples is grossly mis-stated. While that may be true for the truly poor, the majority of the “poor” we have in the US are heavy consumers of lots of different types of goods. Have a look at the Consumer Expenditure Survey broken down by income.

    And nobody said anything was wrong with saving money. Saving is good. Very honorable. In fact, as a society we should probably save more. That is the key to long-run growth. The proposed package is not supposed to stimulate long-run growth, however.

    The majority of the people in this country are looking for and expecting the government to do something right now. If you don’t think they should, fine. If you do, though, it would be good to have some generally accepted theory of economics on your side. I was explaining the theory, not supporting it or buying into it. It’s rationale, even if it is drenched in class warfare, IS supported by the standard economic theory used by this and most other governments.

  • EconJeff

    Don “S.”-

    If you’ll take another look at my first post here, you’ll see that I was simply explaining why this is supposed to work. As I am not a Keynesian, I really don’t think this will work. I actually think this package is pandering to a bunch of whiners, especially in the mortgage market, who lost a bet and want their money back. I agree with
    Patrick Kyle that has been caused by “years of abusive use of credit by consumers and mismanagement by government and banks” and with Kristofer Carlson that this will only come back and bite us in the behind in the form of higher taxes.

    The reason why this type of pandering works, however, is because it is based on an economic theory which has been the foundation of government fiscal policy for the past 50-70 years.

    I will not talk about class warfare, if you believe in it fine, then you can see the world through that lens. Your supposition, though, that the poor spend primarily on staples is grossly mis-stated. While that may be true for the truly poor, the majority of the “poor” we have in the US are heavy consumers of lots of different types of goods. Have a look at the Consumer Expenditure Survey broken down by income.

    And nobody said anything was wrong with saving money. Saving is good. Very honorable. In fact, as a society we should probably save more. That is the key to long-run growth. The proposed package is not supposed to stimulate long-run growth, however.

    The majority of the people in this country are looking for and expecting the government to do something right now. If you don’t think they should, fine. If you do, though, it would be good to have some generally accepted theory of economics on your side. I was explaining the theory, not supporting it or buying into it. It’s rationale, even if it is drenched in class warfare, IS supported by the standard economic theory used by this and most other governments.

  • Don S

    EconJeff:

    I am glad to hear that you don’t believe in this nonsense. That is not entirely clear from your first post, where your main point seems to be that it won’t work because the stimulus will not arrive in time. And your second post doesn’t include any disclaimers that you are only stating the positions of Keynesians, and not your own. So, I am sure you can understand my confusion.

    So you really don’t think that politicians engage in class warfare? Particularly in this election year, where every democrat stump speech includes a promise to “make the rich pay their fair share”, even though the so-called rich already pay more than 80% of total personal income taxes?

    As for the “staples” argument, I was responding to your point that: “The multiplier effect of the poor spending money is greater than that of the rich because the poor will spend more of it and the rich will spend less of it. So while there is a loss from a rich person who can’t spend as much, the gain from the poor person spending yields a net gain.” I thought “poor” meant “poor”, and that you were primarily addressing the insistence of democrats to include those who paid no income tax in the program, while excluding those who earned more than $75,000 per year. If the purpose of the plan is to stimulate the economy, giving handouts to those who paid no tax is not going to be stimulative for the reasons I stated. Moreover, cutting off the handouts at $75,000 misses the folks who are the most likely to spend the funds in a stimulative way. That was my point, and if you would like to refute it, go ahead and have a crack at it. The bottom line is that this silly plan only has the net effect of borrowing $150 billion from our grandchildren to attempt to buy some votes this November, in my opinion. They (our grandchildren) will get to pay this largess back with interest.

    You missed my argument on saving as well, by ignoring what I said about the market. Investment in the market at this point in time, by buying bargain stocks, is probably the most stimulative thing that could be done, because lack of confidence in the market is one of our big problems right now. This economic downturn is largely one of loss of confidence, and strategic investment in the markets, thus beginning to turn them upward again, would boost consumer confidence a lot more than a token handout. It would boost the economy in both the short and long term.

    As for your last paragraph, the government has already responded. The Fed has lowered rates by a total of about 2%, including a recent emergency 3/4% drop between meetings. This will infuse liquidity into the economy over time, and is about as useful a thing as the government can do. It will take time to shake out the housing market, but the correction is needed, as prices had increased too much and too fast. It’s tough for those who bought at the top of the market and have lost principal, but there were many warning signs that this was coming. All markets, including the housing market and the stock market, need periodic corrections in order to function healthfully. It’s time for the government to be a “big boy” for once, instead of pandering, and explain why we need to let this thing take its course. Encourage and facilitate a private charity response to all of the hardship and need that is coming out of this, reduce taxes and government spending to return the economy to the people.

    Your last paragraph is confusing, as well, because although you insist that you are not a Keynesian, you seem to be promoting the theory quite strongly, to the point of even insinuating that because I do not subscribe to the Keynesian theory, I do not have “some generally accepted theory of economics on my side”. My economic theory is capitalism, which at least used to be accepted in this country, but unfortunately seems to be swiftly going out of favor. What is your’s?

  • Don S

    EconJeff:

    I am glad to hear that you don’t believe in this nonsense. That is not entirely clear from your first post, where your main point seems to be that it won’t work because the stimulus will not arrive in time. And your second post doesn’t include any disclaimers that you are only stating the positions of Keynesians, and not your own. So, I am sure you can understand my confusion.

    So you really don’t think that politicians engage in class warfare? Particularly in this election year, where every democrat stump speech includes a promise to “make the rich pay their fair share”, even though the so-called rich already pay more than 80% of total personal income taxes?

    As for the “staples” argument, I was responding to your point that: “The multiplier effect of the poor spending money is greater than that of the rich because the poor will spend more of it and the rich will spend less of it. So while there is a loss from a rich person who can’t spend as much, the gain from the poor person spending yields a net gain.” I thought “poor” meant “poor”, and that you were primarily addressing the insistence of democrats to include those who paid no income tax in the program, while excluding those who earned more than $75,000 per year. If the purpose of the plan is to stimulate the economy, giving handouts to those who paid no tax is not going to be stimulative for the reasons I stated. Moreover, cutting off the handouts at $75,000 misses the folks who are the most likely to spend the funds in a stimulative way. That was my point, and if you would like to refute it, go ahead and have a crack at it. The bottom line is that this silly plan only has the net effect of borrowing $150 billion from our grandchildren to attempt to buy some votes this November, in my opinion. They (our grandchildren) will get to pay this largess back with interest.

    You missed my argument on saving as well, by ignoring what I said about the market. Investment in the market at this point in time, by buying bargain stocks, is probably the most stimulative thing that could be done, because lack of confidence in the market is one of our big problems right now. This economic downturn is largely one of loss of confidence, and strategic investment in the markets, thus beginning to turn them upward again, would boost consumer confidence a lot more than a token handout. It would boost the economy in both the short and long term.

    As for your last paragraph, the government has already responded. The Fed has lowered rates by a total of about 2%, including a recent emergency 3/4% drop between meetings. This will infuse liquidity into the economy over time, and is about as useful a thing as the government can do. It will take time to shake out the housing market, but the correction is needed, as prices had increased too much and too fast. It’s tough for those who bought at the top of the market and have lost principal, but there were many warning signs that this was coming. All markets, including the housing market and the stock market, need periodic corrections in order to function healthfully. It’s time for the government to be a “big boy” for once, instead of pandering, and explain why we need to let this thing take its course. Encourage and facilitate a private charity response to all of the hardship and need that is coming out of this, reduce taxes and government spending to return the economy to the people.

    Your last paragraph is confusing, as well, because although you insist that you are not a Keynesian, you seem to be promoting the theory quite strongly, to the point of even insinuating that because I do not subscribe to the Keynesian theory, I do not have “some generally accepted theory of economics on my side”. My economic theory is capitalism, which at least used to be accepted in this country, but unfortunately seems to be swiftly going out of favor. What is your’s?

  • EconJeff

    Don S.

    You miss my point entirely. Explaining a theory and supporting a theory are different. I never wrote about your theory of economics, since you never stated one. The theory behind this package, and explains why this package is supposed to work, however, is Keynesian. So to explain a Keynesian theory, I used the Keynesian framework. Were I to spend more time stating why I don’t think this plan will work, I would use a more neo-Classical approach to economics. But as that is not what I was doing, and am not doing now, I will not. Here, I will try to address you comments.

    1) Politicians do engage in class warfare. I am not a politician. I am not engaging in class warfare. In explaining the economic roots of this stimulus, class warfare is irrelevant. If you want to discuss the political roots, then yes, it is relevant. If you want the go even further and discuss the political economy of the package, then we would probably rely on more normative arguments, i.e., what should be, rather than the positive arguments, i.e., what is. I chose to discuss what is. Your posts regard my positive statements as normative.

    2) I do not think your argument is correct. Your argument that it is the spending of the rich that stimulates the economy is not something I agree with. Again, my point is to explain the Keynesian rationale. Using that framework, you would be wrong in that assuption because of the differing marginal propensities to consume. Debating this point will quickly devolve into a discussion of the number of angels that can dance on the head of a pin, so let’s just say we disagree here.

    3) I ignored your argument on saving because it was irrelevant to my argument, which you were trying to disprove. I don’t actually give a hoot about the stock market. My thoughts on this are, however, that if we spend our money on stock in worthless companies, and the prices of those stocks go up, were are left with over-priced stocks in worthless companies, which, if you remember, is what happened with the tech bubble.

    4) The Federal Reseve is technically not the government, but I’ll let that slide. ;) As for the rest of that paragraph, I agree. I never said I didn’t.

    5) Keynesianism is a form of capitalism. Again, there is a difference between explaining a theory and supporting it. I apologize for giving the impression that I did not think you have any economic theory on your side. Please believe that that was not my intent. What I was trying to say was that Keynes’ ideas, which form the basis for modern fiscal policy, are what provides the rationale for the stimulus, and that was all. I could go further and explain how Keynes’ economic framework has never been fully implemented, just as supply-side economics has never been fully implemented. But that’s irrelevant.

    6) As for me, I tend to agree that markets should work themselves out, as I think we agree should happen here. However, I also believe that sometimes markets fail. When that occurs, it can be more efficient for the govenment or a sufficiently large private club to pool the risk of the individuals. Note that I said it can be, not that it is, and that I said a private club can also take care of it, not necessarily the government.

    Hopefully these address your comments somewhat satisfactorily. If not, I apologize, and I will try to be more helpful in the next round.

  • EconJeff

    Don S.

    You miss my point entirely. Explaining a theory and supporting a theory are different. I never wrote about your theory of economics, since you never stated one. The theory behind this package, and explains why this package is supposed to work, however, is Keynesian. So to explain a Keynesian theory, I used the Keynesian framework. Were I to spend more time stating why I don’t think this plan will work, I would use a more neo-Classical approach to economics. But as that is not what I was doing, and am not doing now, I will not. Here, I will try to address you comments.

    1) Politicians do engage in class warfare. I am not a politician. I am not engaging in class warfare. In explaining the economic roots of this stimulus, class warfare is irrelevant. If you want to discuss the political roots, then yes, it is relevant. If you want the go even further and discuss the political economy of the package, then we would probably rely on more normative arguments, i.e., what should be, rather than the positive arguments, i.e., what is. I chose to discuss what is. Your posts regard my positive statements as normative.

    2) I do not think your argument is correct. Your argument that it is the spending of the rich that stimulates the economy is not something I agree with. Again, my point is to explain the Keynesian rationale. Using that framework, you would be wrong in that assuption because of the differing marginal propensities to consume. Debating this point will quickly devolve into a discussion of the number of angels that can dance on the head of a pin, so let’s just say we disagree here.

    3) I ignored your argument on saving because it was irrelevant to my argument, which you were trying to disprove. I don’t actually give a hoot about the stock market. My thoughts on this are, however, that if we spend our money on stock in worthless companies, and the prices of those stocks go up, were are left with over-priced stocks in worthless companies, which, if you remember, is what happened with the tech bubble.

    4) The Federal Reseve is technically not the government, but I’ll let that slide. ;) As for the rest of that paragraph, I agree. I never said I didn’t.

    5) Keynesianism is a form of capitalism. Again, there is a difference between explaining a theory and supporting it. I apologize for giving the impression that I did not think you have any economic theory on your side. Please believe that that was not my intent. What I was trying to say was that Keynes’ ideas, which form the basis for modern fiscal policy, are what provides the rationale for the stimulus, and that was all. I could go further and explain how Keynes’ economic framework has never been fully implemented, just as supply-side economics has never been fully implemented. But that’s irrelevant.

    6) As for me, I tend to agree that markets should work themselves out, as I think we agree should happen here. However, I also believe that sometimes markets fail. When that occurs, it can be more efficient for the govenment or a sufficiently large private club to pool the risk of the individuals. Note that I said it can be, not that it is, and that I said a private club can also take care of it, not necessarily the government.

    Hopefully these address your comments somewhat satisfactorily. If not, I apologize, and I will try to be more helpful in the next round.

  • LeRoy

    I’ve yet to meet a single democrat who refused to cash the check last time.

  • LeRoy

    I’ve yet to meet a single democrat who refused to cash the check last time.

  • Don S

    EconJeff:

    I apologize for assuming you supported what you were explaining. You explained it in a persuasive style, which led me to believe you were at least sympathetic to the economic theories behind the stimulus package.

    I don’t think you can extract the economic roots from the political roots of this particular package. No serious economist would propose such a package solely for economic reasons, because it just plain won’t work. Injecting a $150 billion stimulus six months from now into a $7 trillion economy is not going to substantively “move the numbers”, and you know that as well as I do. The purpose for the package is political, as you have acknowledged in your earlier posts. Remember, you are the one who said the package is being proposed because “the people want the government to do something”. The essence of a political package.

    We disagree totally on the definition of the rich. I do not regard a single person making $75,000 as “rich”, nor a two income couple making $150,000. They are comfortably upper middle class, but not rich, at least not by American standards (certainly, worldwide, practically all of us are rich). And for the reasons stated above, it is clear that the spending of this class would be more stimulative than the spending of the very poor, who have been included in the package, and which point you have ignored.

    We disagree that the stock market is currently overvalued. In fact, it is currently substantially undervalued by historical standards in many segments, due to the crash in financial stocks which has dragged many other segments down with it because of investor panic. I don’t understand why my argument is irrelevant just because you don’t like it. It is clear that savings can be stimulative in the short term if directed into the right vehicles, and a heck of a lot more stimulative than purchasing more gasoline or food. My point was the whole basis for deciding who was worthy to receive the “rebates”, and who was not, was flawed. How is that not relevant to your argument?

    I’ll let your paragraph 4 slide, but the angels are dancing on that one.

    Classic Keynesian economic theory is that we deficit spend during recession periods to stimulate, and then pay down the deficit during prosperous periods by reducing spending to below revenue levels. We have become convenient Keynesians in this country. We deficit spend during recessions to stimulate, then we deficit spend during good times to enhance government benefits for citizens who are becoming increasingly unable to fend for themselves. And we are laying the whole $9 trillion debt on our children. Hopefully, we can at least agree that this package is a boondoggle that should be stopped.

  • Don S

    EconJeff:

    I apologize for assuming you supported what you were explaining. You explained it in a persuasive style, which led me to believe you were at least sympathetic to the economic theories behind the stimulus package.

    I don’t think you can extract the economic roots from the political roots of this particular package. No serious economist would propose such a package solely for economic reasons, because it just plain won’t work. Injecting a $150 billion stimulus six months from now into a $7 trillion economy is not going to substantively “move the numbers”, and you know that as well as I do. The purpose for the package is political, as you have acknowledged in your earlier posts. Remember, you are the one who said the package is being proposed because “the people want the government to do something”. The essence of a political package.

    We disagree totally on the definition of the rich. I do not regard a single person making $75,000 as “rich”, nor a two income couple making $150,000. They are comfortably upper middle class, but not rich, at least not by American standards (certainly, worldwide, practically all of us are rich). And for the reasons stated above, it is clear that the spending of this class would be more stimulative than the spending of the very poor, who have been included in the package, and which point you have ignored.

    We disagree that the stock market is currently overvalued. In fact, it is currently substantially undervalued by historical standards in many segments, due to the crash in financial stocks which has dragged many other segments down with it because of investor panic. I don’t understand why my argument is irrelevant just because you don’t like it. It is clear that savings can be stimulative in the short term if directed into the right vehicles, and a heck of a lot more stimulative than purchasing more gasoline or food. My point was the whole basis for deciding who was worthy to receive the “rebates”, and who was not, was flawed. How is that not relevant to your argument?

    I’ll let your paragraph 4 slide, but the angels are dancing on that one.

    Classic Keynesian economic theory is that we deficit spend during recession periods to stimulate, and then pay down the deficit during prosperous periods by reducing spending to below revenue levels. We have become convenient Keynesians in this country. We deficit spend during recessions to stimulate, then we deficit spend during good times to enhance government benefits for citizens who are becoming increasingly unable to fend for themselves. And we are laying the whole $9 trillion debt on our children. Hopefully, we can at least agree that this package is a boondoggle that should be stopped.

  • EconJeff

    Don S.

    I guess I’m coming from teaching economics–I tried not indoctrinate my students so I stuck to giving a dispassionate account of the theory and letting them decide if the theory is reasonable. I think we agree on a lot, but I did a poor job of explaining what I was trying to do: After my first post, I was simply trying to explain the theory, and then I was defending my explanation of that theory.

    From the numbers I have in front of me, in 2004 the 90th percentile of earnings covered by SSA (which covers most wage-based employment in the US) is only $67,000, which is below the $75,000 example we are working from, so they aren’t poor, their actually at the top of the US wage distribution. I guess we’re both wrong on that one! You say that it is clear that these people’s spending is more stimulative. You don’t prove that, though, you assert it. I disagree with that and provide just as much proof! We could probably argue about this for a long time, though.

    I felt the stock market argument was irrelevant based on my purpose with the previous posts–to explain the theory behind the stimulus. It is very relevant for the broader post of whether it is the right policy. I was a bit single tracked before. I still don’t think it addresses the Keynesian argument, however.

    I agree that we are “convenient Keynesians” (I really like that term!). Keynes’s theories, from his perspective, were meant to soften both the economic downturns AND the upturns so that we have a much smoother economic cycle. The latter seems to have been forgotten.

    As I still have ~35-40 years to go in the labor market, I’ll be for paying my share of whatever ill-conceived policies are implemented, and I’m not looking forward to it. At least the current Senate looks like it may kill this package with more pork!

  • EconJeff

    Don S.

    I guess I’m coming from teaching economics–I tried not indoctrinate my students so I stuck to giving a dispassionate account of the theory and letting them decide if the theory is reasonable. I think we agree on a lot, but I did a poor job of explaining what I was trying to do: After my first post, I was simply trying to explain the theory, and then I was defending my explanation of that theory.

    From the numbers I have in front of me, in 2004 the 90th percentile of earnings covered by SSA (which covers most wage-based employment in the US) is only $67,000, which is below the $75,000 example we are working from, so they aren’t poor, their actually at the top of the US wage distribution. I guess we’re both wrong on that one! You say that it is clear that these people’s spending is more stimulative. You don’t prove that, though, you assert it. I disagree with that and provide just as much proof! We could probably argue about this for a long time, though.

    I felt the stock market argument was irrelevant based on my purpose with the previous posts–to explain the theory behind the stimulus. It is very relevant for the broader post of whether it is the right policy. I was a bit single tracked before. I still don’t think it addresses the Keynesian argument, however.

    I agree that we are “convenient Keynesians” (I really like that term!). Keynes’s theories, from his perspective, were meant to soften both the economic downturns AND the upturns so that we have a much smoother economic cycle. The latter seems to have been forgotten.

    As I still have ~35-40 years to go in the labor market, I’ll be for paying my share of whatever ill-conceived policies are implemented, and I’m not looking forward to it. At least the current Senate looks like it may kill this package with more pork!

  • http://www.bikebubba.blogspot.com Bike Bubba

    Jeff, I would beg to differ with the idea that Keynesianism, including the idea that spending is better than saving for the mass economy, has anything to do with capitalism, starting with the basic reality that Keynes more or less assumed that one could stimulate the economy by diverting resources to society’s single unproductive entity–government. Put bluntly, Keynes more or less assumes a massive increase in state power.

    I would therefore differ with the idea that spending is better than saving in the short term, especially since my employment (engineering) depends on capital spending! To try and divide the two concepts is not to draw a fundamental economic distinction; it is to split hairs in an effort to benefit one group (shopkeepers & line workers?) over another (builders of capital/engineers).

    In other words, classic Keynesian statism.

  • http://www.bikebubba.blogspot.com Bike Bubba

    Jeff, I would beg to differ with the idea that Keynesianism, including the idea that spending is better than saving for the mass economy, has anything to do with capitalism, starting with the basic reality that Keynes more or less assumed that one could stimulate the economy by diverting resources to society’s single unproductive entity–government. Put bluntly, Keynes more or less assumes a massive increase in state power.

    I would therefore differ with the idea that spending is better than saving in the short term, especially since my employment (engineering) depends on capital spending! To try and divide the two concepts is not to draw a fundamental economic distinction; it is to split hairs in an effort to benefit one group (shopkeepers & line workers?) over another (builders of capital/engineers).

    In other words, classic Keynesian statism.

  • Don S

    First, thanks to Bike Bubba, as I have been thinking that only EconJeff and I were still reading this thread. Second, EconJeff, it has been a pleasure having this discussion with you, and I am glad that you are out there in the teaching world. Intelligent, thoughtful, evenhanded teachers are all too scarce and our future generations depend on folks like you dedicating your careers to their education. There is yet hope for our future!

    I hope we have the opportunity to engage again on another thread.

  • Don S

    First, thanks to Bike Bubba, as I have been thinking that only EconJeff and I were still reading this thread. Second, EconJeff, it has been a pleasure having this discussion with you, and I am glad that you are out there in the teaching world. Intelligent, thoughtful, evenhanded teachers are all too scarce and our future generations depend on folks like you dedicating your careers to their education. There is yet hope for our future!

    I hope we have the opportunity to engage again on another thread.

  • EconJeff

    I too am glad you’re back, Bike Bubba. But I will disagree and maintain that Keynes’s ideas are consistent with capitalism in the broad sense, just not laissez faire capitalism. A very powerful state can still allow individuals to follow their own interests to some extent.

    I would much rather see the $150 billion invested in public works (improving roads, bridges, and other infrastructure), which would probably give engineers some work, but that was not the package proposed.

    Two points, though. And it could be argued that the unemployed are not productive and that the underemployed are not very productive either. So the government is not “society’s single unproductive entity”.

    Keynes’s argument doesn’t end with diverting the money to the government; it then goes on to other consumers. Specifically, it goes to the consumers his theory says are better at consuming. It sounds like you, Don, and I probably all disagree with that theory, though.

    Don-
    I hope we do too! Unfortunately, I have to disappoint you a little as I am no longer in academia. I have since taken my ramblings to the public sector… and to the part of government many would consider to be the most heinous affront to pure capitalism in the US. At least I’m trying to make sure we don’t waste too much money…

  • EconJeff

    I too am glad you’re back, Bike Bubba. But I will disagree and maintain that Keynes’s ideas are consistent with capitalism in the broad sense, just not laissez faire capitalism. A very powerful state can still allow individuals to follow their own interests to some extent.

    I would much rather see the $150 billion invested in public works (improving roads, bridges, and other infrastructure), which would probably give engineers some work, but that was not the package proposed.

    Two points, though. And it could be argued that the unemployed are not productive and that the underemployed are not very productive either. So the government is not “society’s single unproductive entity”.

    Keynes’s argument doesn’t end with diverting the money to the government; it then goes on to other consumers. Specifically, it goes to the consumers his theory says are better at consuming. It sounds like you, Don, and I probably all disagree with that theory, though.

    Don-
    I hope we do too! Unfortunately, I have to disappoint you a little as I am no longer in academia. I have since taken my ramblings to the public sector… and to the part of government many would consider to be the most heinous affront to pure capitalism in the US. At least I’m trying to make sure we don’t waste too much money…

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