USMarketView

January 29, 2009

 

 

 

With the TV jocks evaluating the pros and cons of the near trillion dollar ‘US economy bailout’ with airs of professional expertise, it’s important to focus on the fundamentals.

 

First, anyone taking the first Economics course, in the last some sixty years, will remember the ‘government spending multiplier’ and the ‘tax change multiplier.’  This accepted premise is no longer just a conjecture.  Just look at our deficit spending in World War II, and consider the rapid and substantial recovery it brought to our economy.

 

Second, while the stimulus difference of a tax cut for individuals is smaller than an equal amount of spending, assertions that all of the tax cuts would go into savings is not upheld by our experiences.  Sure much of the tax cut would be saved –and where are the critics who regularly complain about the lack of savings in the United States? Yet some, if not the majority of it, would be spent.

 

Third, most Americans prefer tax cuts to government spending, because a stimulus in that form permits each of us to determine individually what the extra dollars will buy.  In other words, as the textbooks would read, the individual, rather than some bureaucrat or legislator, will decide on the uses of our resources and what they will produce. This view of private vs. public spending is fundamental to our American way of life.

 

Lastly, questioning whether government’s specific spending programs will help or not help restore our economy is beside the point.  A dollar spent on sex education provides as much economic stimulus as a dollar spent on anything else.  As the economist who first discovered this stimulus relationship said, if we have no worthwhile projects, pay people to dig holes and then pay others to fill in the holes.  The focus is not on the what but rather on the size of the government deficit.

 

Surely, we all agree that not everyone will find happiness and approve of how Washington spends these stimulus dollars. And while some question the specifics, such as money spent on sex education, they have an obligation to do so.  But that’s not equivalent to believing that those dollars will not help restart the economy.  Surely, are we all not better off if we individually spend our tax cut, to purchase things that sustain and aid our individual set of beliefs? Then we can be faithful to our personal value set and still stimulate the economic recovery.

 

 

DJIA                -2.70 percent

NASDAQ        -3.24 percent

S&P500           -3.31 percent

This entry was posted on Thursday, January 29th, 2009 at 12 042009000000Thu, 29 Jan 2009 16:15:46 +0000 and is filed under Market Report. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.