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Sunday, January 20, 2008

Stimulus Package, or Unnecessary Handouts?

I continue to wait for the conservative chorus to rise in protest against President Bush's proposed "stimulus package" -- a.k.a. the government handing people checks and telling them to spend that free money as fast as they can. Surely these "stimulus package" handouts will destroy any sense of personal responsibility, not to mention"reduce incentives to work, save and invest."

These stimulus package handouts also may not actually have any effect on the recession we may or may not be in. Harvard economics professor Greg Mankiw blogs about all things economic. Yesterday, asking "What ends recessions?" he cited a study by David and Cristina Romer on economic recovery efforts. They looked at postwar recessions and what governments have done to help their economies fire up again.

Remember that governments have two main tools for tinkering with the economy: monetary policy and fiscal policy. Monetary policy is what the Federal Reserve does, adjusting interest rates to encourage (or discourage) borrowing. Lower interest rates make it easier for people to borrow more money, which means there will be more money flowing in the economy and thus (we hope) increased economic activity.

Fiscal policy is what Congress and the president do, usually either cutting taxes to leave more money in the economy or increasing spending to pump more money into the economy. For instance, Congress could vote to buy the Army more boots, which would create a lot more business and jobs for folks making leather, laces, and boots (if only most of those jobs weren't in China). Or, as the President is currently proposing, the government could just cut everyone a check for $800 and say, "Have fun at Wal-mart!"

So what works better at fighting recessions, monetary or fiscal policy? You can sift through the academic language of the Romer study if you like, but the short version: the Romers find that interest rate cuts account for "nearly all of the above average growth that occurs early in recoveries."

Mankiw cites another paper from Princeton's Alan Blinder that similarly concludes that monetary policy is a much better tool than fiscal policy for fighting recession. Blinder doesn't rule out using fiscal policy, but he would reserve that tool for "occasional abnormal circumstances... such as when recessions are extremely long and/or extremely deep, when nominal interest rates approach zero, or when significant weakness in aggregate demand arises abruptly." Mankiw questions whether the current economy, with historically mild 5% unemployment and "a consensus near-term growth forecast of about 1 percent" meets Blinder's criteria for resorting to fiscal stimulus.

Perhaps we should question these handouts as well. Is it coincidence that Republicans and Democrats alike can so quickly agree on an unbudgeted $145 billion dollar expenditure in an election year?

And you know, maybe a little recession every now and then isn't such a bad thing. After all, the mere fear of recession has oil prices dropping (below $89 this morning, an 11% drop from the start of the month). Maybe Bush should hold off on that stimulus package until gas gets back down to $2 a gallon. Tough it out until then, and people might be able to save enough money on their own to spend in other sectors without any government intervention.

But don't get me wrong: you'll find me waiting by my mailbox as eagerly as the next guy for my check from President Bush. But then I'm a raving tax-and-spend liberal who believes in government handouts. I have my excuse. Fiscal conservatives, I await your hue and cry.

16 comments:

  1. Handout? Well, let's think this over...

    The government is taking money by force from me, and then it gives it back to us. Conservatives (and whatever someone would call me) have always been in favor of tax cuts, and this looks like an indirect form of one.

    Aha, but it's not. According to KELO the money would not go to people making over $110,000, but instead be distributed among those making less.

    For some people, the rebate check symbolizes getting money back that they paid in. I have no problem with that.

    But for other, a lot of the money is from people making more than $110,000. Now I know that rich people aren't too popular at this blog, but it still strikes me as stealing to coercively take money out of their pockets and give it to someone else who didn't pay that much in taxes. (Sure Robin Hood was a folk hero, but he was still a thief. Count Dracula was a folk hero, too.)

    Why aren't the rich howling over this? My guess is two reasons:

    1) It's better to see the federal government give money back to its citizens than squander it to idiotic special interests, like the mohair industry. The government doesn't show any signs of doing smart things with our money (like paying off our national debt), so at least give the money back to its citizens, even if it goes back disproportionately to how it came in.

    2) Some are buying into a trickle-up theory. If poor people have money, they'll spend or save it and the richer folks will benefit from either. (And contrary to your claims, Cory, investing/saving money is better for the economy than spending it... so long as the money is saved in a bank or mutual fund and not under a mattress.) Getting the money into the private sector is better than it sitting in the black hole known as the federal treasury.

    Personally, I think Bush should just scrap the federal income tax entirely... that would stimulate the economy, keep money in the private sector, and keep it in the pockets of those who earned it. And as far as I can tell there aren't any real drawbacks.

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  2. Small clarification: I think saving money would be great for everyone's economy. It's the President and Congress and our own governor sending us the message that being thrifty is bad, that we need to "Buy buy buy!" to keep the economy growing (and, for Gov. Rounds, sales tax revenue flowing).

    A thought: if the government encouraged savings through higher interest rates, wouldn't people have more money in the bank, so when we hit hard times, individuals could withdraw their own personal stimulus packages from their savings accounts to get them through the downturns?

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  3. There has been an effort in politics over the past 50 years to encourage more US citizens to become reliant on our government for financial support, handouts, low-income health coverage, etc., and the main reason equates to one thing which is votes.

    The people who are writing and reading this blog are not at the low end of the intellectual spectrum, but those who will benefit most from a tax refund stimulus check may be less educated.

    The more our government can engratiate its citizens with what appears to be free money and service, the more loyalty you'll see at election time. And the votes are coming from varying racial and economic segments.

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  4. joe "your taxes are my payceck" nelson1/21/2008 4:06 PM

    I wanted to pipe in and say that my Army boots were made in the USA.

    Also, foreign relief must bug the heck out of you, David, seeing as how Africa pays little towards US taxes. We will never see a system where you get what you put in (or didn't put in for that matter).
    As far as anyone coercively reaching into pockets to take money...that's the social contract we agree to. And is coercian a bad thing, if it stems from a legitimate government exercising its legitimate powers?

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  5. "Also, foreign relief must bug the heck out of you, David, seeing as how Africa pays little towards US taxes."

    I think foreign relief organized by private US churches and charities operating on voluntary donations from US citizens is divine.

    I think it is wrong when a person or administration forces money from someone else and gives it to Africa.


    As for the social contract...

    Appealing to a social contract doesn't mean that that contract is ideal or in every sense right. Saddam had a social contract with the Iraqi citizens (he gives them protection from Israelis and Kuwaitis, they cater to his every whim). America's current contract also works, and it's also not ideal. Paying for police protection is reasonable. Paying for mohair and forcing charity is not reasonable (and it's not charity, either).


    As for coercion...

    Coercion is evil. At times it is a necessary evil, but still evil. It's evil to lock someone up, but justifiable to protect the rest of society. It's evil to force money out of someone, but necessary to fund a certain few services.

    The issue is that America coerces a lot more money out of its citizens than is necessary... Any service that can be provided reasonably and efficiently through trade or donations has no need to be implemented coercively.

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  6. joe "my job is coercion" nelson1/21/2008 7:54 PM

    Who decides how much coercion is needed? What ethical system do we use? Do you favor utilitarianism? Deontology? Do we, as Americans, have a duty to our fellow Americans? Or as humans, to other humans? You are for Africa getting money, but not for forcing people to give money to Africa. Do we count the costs in human lives? Do the ends justify the means?

    It reminds me of a debate I had within myself a few years back. Should I obey God out of love or duty? I have heard the answer is both, but if one is not serving God at all, at least start off by doing it out of a sense of duty, and the love will follow.

    I do not think most Americans care too much about Africa, or about other Americans. But we do have a duty, obligations that should be fulfilled. And if the government ever did kick back $2000 to the Average American, it certainly would not go towards charity. The reigning authority has to dole out the money for aid, our current culture certainly will not.

    Do I want a smaller Federal Government? Yes.
    Do I want people instead of the governemrnt to contribute to charity/welfare? yes.
    Do I think that our hedonistic, instant gratification culture (which was created by and is perpetuated by our buy-buy-buy economy) will "do the right thing"?

    No, especially when people take advantage of disasters (911, Katrina)

    What we need is a tax system that will discourage consumerism. Fairtax.org?

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  7. Well, I'm with your last sentence. Income tax (as implemented by America) is deceptive and unfair. A national sales tax (fair tax) is the first step in the right direction because then citizens would understand how much money is being given to the government. (Most think that refund checks are bonus pay.) Once it is clear how much we're paying the government, then we can vote each year to ratchet down that percentage.


    "Who decides how much coercion is needed?"

    We do. But not by a simple majority. In order to legislate national coercion I think we should require two standard deviations of support (96%). I think it is clearly wrong to let 51% of a group force the other 49% of the group to do something involuntarily.


    "Do you favor utilitarianism? Deontology?"

    Natural law, with a heavy emphasis on freedom is my ethical theory of choice.


    "Do we, as Americans, have a duty to our fellow Americans?"

    Depends on the circumstances. I have a duty to provide accurate eyewitness testimony in a criminal trial. I don't have a duty to buy my neighbor kid an electric guitar if he really wants one and can't afford it. Generally speaking, we have a broad moral duty to our fellow Americans, but narrow legal duty. I have a moral duty to comfort people in pain, but not a legal one.


    "Or as humans, to other humans?"

    Ditto.


    "You are for Africa getting money, but not for forcing people to give money to Africa."

    Precisely. To renounce liberty is to renounce being a man, to surrender the rights of humanity and even its duties. For he who renounces everything no indemnity is possible. Such a renunciation is incompatible with man's nature; to remove all liberty from his will is to remove all morality from his acts.


    "Do we count the costs in human lives?"

    As the government of the United States, no we don't count the cost of African lives. As people of God and members of churches, yes we do.


    "Do the ends justify the means?"

    In this case, no. If you coerce charity, it ceases to be charity.


    "I do not think most Americans care too much about Africa, or about other Americans. But we do have a duty, obligations that should be fulfilled. And if the government ever did kick back $2000 to the Average American, it certainly would not go towards charity. The reigning authority has to dole out the money for aid, our current culture certainly will not."

    Where does anyone get off thinking it is fair to take another person's money and 'do something good' with it against that person's wishes? It's his money to invest, donate, or squander. Feel free to hit him with sermons or entice him into your pyramid scheme, but you can't spend his money without his permission.


    "Do I think that our hedonistic, instant gratification culture (which was created by and is perpetuated by our buy-buy-buy economy) will "do the right thing"?

    "No, especially when people take advantage of disasters (911, Katrina)"

    How exactly is a government to be more trusted to do the right thing? Take a survey of governments throughout history... the more power/money you give them, the more corrupt they become. Perhaps I'm wrong, but just in thinking about our current politicians, it seems to me that as a group they are obviously more vain, greedy, and selfish than the average citizen.

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  8. joe "let's rewrite the Constitution" nelson1/21/2008 9:07 PM

    Well, enough descriptive analysis, how about some normative discussion?
    What do we do? How do we affect change? I seriously do not know. Cessession?
    How do we get people to give more?
    Will Dennis Kucinich solve our problems?

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  9. "Well, enough descriptive analysis, how about some normative discussion? What do we do? How do we affect change? I seriously do not know. Cessession?"

    Ah, the classic question: reform from within, or break off and start anew. Erasmus tried to reform the Catholic Church. Luther tried to reform it, and then because he was so good at it, he was excommunicated. Zwingli just broke off and started anew, and then died when the Catholics sneak-attacked his hometown of Zurich to quell the Swiss Reformation.

    The Constitution itself is ok, up through 10 amendments (and especially amendment #10). It was actually the civil war amendments (14 in particular) that set the foundation for the federal bureaucracy we have today. For some reason, honest Abe thought it necessary to coerce the Southern States into allegiance with the constitution. (Jefferson didn't think that the constitution was some kind of eternally binding contract and thought it reasonable for states to be able to opt out if the government stopped adhering to it.)


    "How do we get people to give more?"

    Show them the problems that they need to help with, and stop the government programs. Welfare doesn't help people achieve a better lifestyle. Welfare becomes a lifestyle. If a person receives money from another person, they understand the meaning of the gift and feel gratitude and accountability. If they take a check from the government, they cash it and feel no incentive to take any responsibility for their life.


    "Will Dennis Kucinich solve our problems?"

    He's an honest person, and true to his convictions. But he's got the wrong convictions. He's all about making government into the older, protector brother... trying to take a Ponzi scheme like social security and give it more of our money, rather than help citizens learn how to save and plan for the future... and forcing us to buy health insurance even if we don't want it.

    Ron Paul has a better shot of slashing bureaucracy to its essential necessary core and restoring the federal government to the constraints implied by the U.S. Constitution... which means less coercion... which means more freedom... which means more morality.

    And since he won't get it, I'm going with Huckabee for #2. Mike is the only other contender serious about FairTax.

    Things aren't necessarily bad for us here in America... but I do think that the public is lazy when it comes to thinking about political philosophy. Most people stare at me like I'm a self-levitating oracle when I tell them that the all government action is done by coercion. It's so plainly obvious, but no one ever thinks about it. Then the only relevant question is whether we want more coercion or less.

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  10. Even the author of this blog won't enunciate a coherent political philosophy (despite my many requests on many different issues)... and yet he feels qualified to bark about any political issue he reads in the newspaper.

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  11. "The Constitution itself is ok, up through 10 amendments (and especially amendment #10). It was actually the civil war amendments (14 in particular) that set the foundation for the federal bureaucracy we have today."

    Yeah, all that abolition of slavery and women's right to vote stuff--who needs it? ;)

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  12. "Yeah, all that abolition of slavery and women's right to vote stuff--who needs it? ;)"


    I agree with you that those are definitely good things, but I seriously believe that slavery (and suffrage) should have been left to the states to decide. (Abraham Lincoln said the same thing while campaigning for President... something changed after he was elected.) Same with abortion, teaching evolution, the drinking age, drug laws, and polygamy... all should be left to the states. It was wrong for the US to force Utah to ban polygamy in its state constitution before letting it become a state. (A clear violation of the separation of church and state.)

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  13. joe "David hates the 16th amendment" nelson1/22/2008 11:14 AM

    David,
    Are we not citizens of the United States of America first, and state citizens second? Is not the Federal Government there to protect the minorty, when the majority are acting unethically? And you even live in South Dakota! Minnesota would canibilze us if Papa Smurf wasn't watching out for us.

    Erin,
    I am pretty sure that one needs to be a white, land-owning, literate male to partake in the discussion. ;) David appears to be an idealist, eh?

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  14. "Are we not citizens of the United States of America first, and state citizens second?"

    You can think of yourself that way if you'd like, but that isn't how it was originally intended. The states were near-sovereign entities who banded together on only a couple things (like the Revolutionary War and a common currency). The US was never supposed to dominate the individual states, although most of us have come to believe that today.


    Here's the question you need to ask yourself... on any piece of legislation does it make more sense to have it legislated in a broad scope or a narrow scope? I contend a narrow scope, with the following reasoning:

    As a US citizen, I am 1 out of about 300,000,000... so I am hardly influential at all in any national legislation.

    As a SD citizen, I am 1 out of about 800,000... so my vote is 375 times more influential in the outcome of state legislation than in a national one.

    As a citizen of Sioux Falls, I am 1 out of about 150,000... my vote is 2000 times more influential in city legislation than in national legislation (5 times more influential than in state legislation).

    As a participant in my marriage, I am 1 out of 2... my vote is 150 million times more influential in family policy than it is in national policy.

    With that in mind, it seems to me that it would be natural for these different institutions to have a reciprocal influence on my life. My life should be determined by family policy 150 million times more than national policy. And this is not unreasonable, considering that every decision we make on what to eat, which movie to rent, how to spend our evening, what color our walls should be, etc. is family policy in one sense or another. This is a sensible barometer of determining when a government is too fascist (ie overstepping its threshold of tolerable coercion). It would be an over-reach of government (at any level) to tell me what movie I'm going to watch tonight (if any), or which sheets go on my bed (if any). Yet those kinds of policies must be decided, and that's what the family is for.

    The local government should thus be 2000 times more influential in my life than the national government, since I have 2000 times more influence. City ordinances, no parking zones, stop lights, zoning laws, etc. all have a pretty significant influence on my day-to-day activities... but I think more things should be handled at the local level. Whether or not we have public schooling should be a local decision, and exactly what gets taught there determined absolutely locally (ie junk No-Child-Left-Behind, and let the school board teach creation or Scientology if they're so inclined). Voters in California and New York shouldn't be able to touch what Sioux Fallsians want to teach their kids. Also get rid of the EPA as a national organization and let local water boards, health boards, and concerned citizens police the cleanliness of their environment. If the people and Rapid City don't mind putting up with stank air and gross water, who are we to deny that?

    The important concept is that the more local the legislation, the more influence a citizen has on it... and so the more influence it should have on him.

    Second, the more local the legislation, the easier it is to move away from it. If Sioux Falls passed some crazy law whereby public schools would teach Scientology or they decided to put LSD in our water, I could pick up and move to Crooks, Tea, or Harrisburg without too much inconvenience (still live by my friends and family, still go to the same job and church). But as a decision becomes more global, it is harder to move away from it. Right now, if I want to live in a place where standard abortions are illegal, I have to leave the country... and that is not convenient.

    Third, when decisions are made locally, I have more access to the decision maker(s). If Mayor Munson passed No-Child-Left-Behind, I could drive across town and kick him in the mouth (or reason it out). I can't do that to President Bush or Ted Kennedy.


    With the general concept thus described, the question is how can we make sure that legislation would filter down this way? What's to stop Congress from putting Scientology in the public schools or the US Supreme Court from making standard abortions legal?

    My proposal for that is to require different thresholds of majority. For the US government I suggest that we need two standard deviations of approval (95.45%). "But then nothing would get passed!" Not much, I agree. The things that would get passed are the absolutely most common-sense laws. We're talking about coercing the whole country into obeying a certain idea, so it is not unreasonable in my mind to require all but unanimous approval. With a threshold of 50%, we pass and repeal national laws like they are fashion trends. Congress overreacts to minute details they have no business dealing with. The dismal swamp southeastern shrew was an endangered species... so any landowners with a dismal swamp southeastern shrew on any acre between the Atlantic and Pacific have to stop using that land for your own purposes lest you kill a shrew (up to $50,000 penalty). Now the shrew is delisted because 15 years later they found that the original species data was flawed.

    Laws that impact 300 million people should not be carried out so recklessly. Kentucky can protect the shrew on its own, if those citizens are concerned. The legislation from the federal government should be only the most solid common sense ideas... no pork, no vote-trading, no lobbyists. Getting elected to the US Congress would be almost a do-nothing job (why should it be otherwise?). The federal laws should be an unmoving bedrock upon which states and cities can confidently build their own legislation.

    State legislation should require 1.5 standard deviations of its citizens (86.64%). Again, we're talking about coercing a whole state, so the bar should be high (but not as high as the national bar).

    City legislation: 1 standard deviation (68.27%) It should take about 2/3 of the population to raise a city tax for a swimming pool. You can always do private fundraising if that percentage is unreachable, but I can't see it being fair to 49% of the city to have to pay for something the other 51% wants.

    Family legislation: simple majority. If 6 of your 10 family members want to eat at Chuckee Cheese, the other 4 should go along with it (provided Mom and Dad say they can afford it).


    Idealist? Not more so than our founding fathers. They recognized that they were trying an experiment in government. I'm just saying that the results of the experiment are in, and that we need to tweak the system to ensure liberty for us and our posterity. The threat to our freedom isn't from other countries, it's from our own legislation.

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  15. joe "we shall call it 'Joetopia'" nelson1/22/2008 5:03 PM

    How do we get from point A to point B? If you adhere to this political philosophy, how do we acheive it? 95.45% in order to repeal all of the red tape? Does your political philosophy work to fix the problem? Or would we need a tabula rasa? If so, how do we get to the tabula rasa?

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  16. A fair question. What options do we have for making the Bergan Constitution a reality?

    1) Revolution. Back in the day you could get what you wanted just by banding together with enough other citizens and storming the Bastille or the Winter Palace. Trouble is, even though we technically have the 2nd amendment, there is no possible way for American citizens to contend with the American military. Mechanized infantry and stealth bombers are not a part of our right to bear arms, apparently, and so we can't effectively use the 2nd amendment option our founding fathers left for us. So, an armed revolution won't work...

    2) Cessation. Technically the US Constitution is a contract, and states should therefore be able to terminate the contract on their end. Unfortunately, unlike most indefinite contracts signed between businesses today, there is no termination clause defining how a state (or the federal government) goes about severing relations. (For instance, how many days notice would South Dakota have to give if indeed we decided pull out?) But it is clear from the Kentucky and Virginia Resolutions that Thomas Jefferson and James 'Madville' Madison considered the federal union a voluntary association.

    Therefore I believe we have legal grounds for cessation... but it won't do any good if we just get invaded by the North. (Why did Abe feel like he had to burn Atlanta to the ground, rather than just let the Confederates form their own country?) It's possible that there wouldn't be a war in our case. Like the Quebec discussion, or better yet, Czechoslovakia, we have evidence that you can get independence without a fight if there are enlightened people in charge. So that might be our best strategy: Have South Dakota pull out of the United States, and become the first member of the Bergan States. By our enlightened Constitution we could win over Wyoming, Montana, North Dakota, etc... maybe even some Canadian provinces.

    3) Gorbachev. A second lesson from Russian history... get a popular leader in favor of perestroika (restructuring). The trouble is that in America it takes more than one leader with all the checks-and-balances we have installed. Our Gorbachev would have to have super-majority followings in both houses of Congress... enough to pass constitutional amendments that repeal everything we dislike, and insert everything we like. Not impossible, but I think the state-by-state cessation scenario is more likely. The Gorbachev scenario requires all of the states understanding the enlightened constitution all at the same time; with cessation you can win them one at a time. The Gorbachev scenario would be more likely if there was a major nationwide economic crisis (which is pretty much what happened in his exact situation).

    4) Mars. The situation that allowed America to found its own Constitution was colonizing a 'new world.' Earth being fully inhabited now (save Antarctica), we could have a literal new world, and opportunity for a new Martian constitution, by colonizing Mars. We're probably a century away from making that a reality, which is a long time to wait... and personally I'm opposed to space colonization for religious reasons. But it's an option.

    That's all the historical patterns for governmental revolution I can think of... did I miss any good ones?

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