Rescues and Stimulus

I’m going to belabor the obvious here. I hate to do it, but somebody needs to and nobody else is:

*Calling something a stimulus package doesn’t make it one. This one doesn’t come close.

*If you are headed in the wrong direction, speed is not your friend. Neither is size.

*The rescue of financial institutions is more urgent than a stimulus package and less expensive to taxpayers. 

*Illiquid assets can be purchased, held, and later resold, possibly at a profit, while money spent is money gone. One is “investment;” the other is spending.

*Money spent with borrowed money raises future interest costs to future taxpayers.

*Rescue investing by the Fed and Treasury probably provide more stimulus than stimulus spending helps the financial system.

*You don’t have to have a stimulus package to get stimulus. The recession is triggering automatic stabilizers – more spending and lower tax payments.  The budget deficit is growing rapidly without a stimulus bill.

*Since the beginning of September, Fed operations have speeded up the growth of bank reserves and money. As velocity normalizes, much stimulus will be unleashed. The trick will be winding it down.

*Tax-rate cuts would result in immediate reductions in withholding and impact the economy faster while letting the public allocate their own funds.

*”Buy American” provisions are crazy. Has anyone heard of Smoot-Hawley? Do we not understand retaliation?

*Did someone say Davis-Bacon would apply to construction contracts? The best I can say about it is that it’s well named.

*This is no time to poke a stick in our biggest international creditor’s eye.

*What some people are calling “manipulation” used to be the official policy of the U.S. and other countries under Bretton Woods.

*I see that while we were focused on these issues, the trial lawyers just got a whole new playing field – equal pay.

Comments (3)

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  1. Here’s my plan, just so you know where I’m coming from:
    1) $100 Billion Infrastructure ( In order to show that we have the confidence to invest in the future )
    2) $100 Billion Tax cuts targeted toward investment ( To attack the fear and aversion to risk )
    3) $200 Billion Sales Tax decrease or Payroll Tax decrease which will be phased out ( To battle the possibility of Debt-Deflation )
    4) Social Safety Net spending, which I’m assuming that you’re calling automatic stabilizers
    Now, you seem to believe that 1 is bogus. Infrastructure cannot be considered an investment. I find this view strange. If you do consider it so, surely then some part of it you agree with. How much?
    The plan has tax cuts and increases in 4 which I approve of. Now, I have to assume that your main objection is 1. But is that enough to vote down a compromise bill? It’s not my plan, but I would have voted for it.
    As for the real stimulus, I would use monetary policy. I happen to be a follower of Irving Fisher, although I am more behaviorally oriented. But I’m bewildered by the idea that this plan has nothing good in it for the GOP. I simply don’t credit that view. It’s bad faith. At most, some of 1 is a bother to them. But how much and where? And what would a compromise be? I guess that compromise is very bad in the GOP’s eyes. Let me quote my hero Burke:

    “All government, indeed every human benefit and enjoyment, every virtue, and every prudent act, is founded on compromise and barter. ”

    Too bad there are no Burkeans in the GOP.

  2. Anonymous says:

    Thank you for the pragmatic concerns which must be kept in the forefront. You vaguely sound like a modern day Will Rogers. Wish it was your steady hand on the tiller as this ship looks ready to founder on unionization, protectionism, schlerotic regulations, and the long tail of today’s robber barons hollowing out their companies and cleaning up the last little bits of gold for themselves (i.e. former MER senior mgmt). I’m not surprised to see gov’t’s renewed heavy hand as the American Dream has been turned upside down– work hard, sacrifice and you can be sure over time your job is offshored while the executive suite is rewarded for its ‘vision’. That’s not to say, gov’t intervention will provide any relief. Just a new master.

  3. c141nav says:

    You said, “The trick will be winding it down.”

    There is a tsunami of refinancing now. Most are getting ‘historic low’ fixed rate products.

    The Fed has lowered the discount rate to zero.

    What happens at some point in the future when the Fed raises the rate to choke inflation?

    I see the cycle repeating itself. Only next time it will be worse.

    Unless the Fed doesn’t raise rates for at least 15 years.