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The Economic Stimulus Act of 2008... Will it reboot the American economy or fail?
heretoinform
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Exactly as the thread title suggests; will the economic stimulus act help America's economy?
Personally, I think it will fail since there is no guarantee that anyone will actually spend the money. I think the majority of people will just put it into savings.
EDIT: Here's a detailed description of the act:
http://www.house.gov/jct/x-8-08.pdf
Basically, the act will give out $600 to each tax payer in America (plus $300 for each dependent child). Congress hopes that Americans will go and spend the money in the market and help the economy.
Personally, I think it will fail since there is no guarantee that anyone will actually spend the money. I think the majority of people will just put it into savings.
EDIT: Here's a detailed description of the act:
http://www.house.gov/jct/x-8-08.pdf
Basically, the act will give out $600 to each tax payer in America (plus $300 for each dependent child). Congress hopes that Americans will go and spend the money in the market and help the economy.
Socialism is the concrete foundation of America. Capitalism is the flimsy tin shack that sits upon it.
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Maybe if you edit the OP to be more informative we can discuss it.
No problem, give me a second.
don't they calculate these numbers as a rough average? i don't remember the formula, but if we have a high MPC, this could be an extremely feasible solution.
most of all, most of all
someone said true love was dead
but i'm bound to fall
bound to fall for you
oh what can i do
By far the most effective step has been the Federal Reserve pumping money into the banking system and increasing liquidity. The modern economy's bread-and-butter is cheap money.
― Marcus Aurelius
Path of Exile: themightypuck
This is my strategy as well. I feel that throwing more money into an economy only helps in the short term. I don't see how a whole $600 (you may get more or less, depending, but the number I've seen thrown around is 600) per person is going to help the current housing market.
ideally people go out and spend it by consuming.
lots of people will, i'm willing to bet. it's dependent on the MPC, but it has a huge multiplying effect depending on how much they've calculated will be given out. it really is insane. i wish i could go into further detail, but i've forgotten most of what i know about macroeconomics.
most of all, most of all
someone said true love was dead
but i'm bound to fall
bound to fall for you
oh what can i do
So this is basically free money for everyone in America? If people are already budgeting, then I don't see why you'd particularly assume that most wouldn't spend it on slightly nicer consumer items, even if they just buy brand-name packaged food instead of the cheap nasty shit for a little while.
http://newnations.bandcamp.com
Doesn't that have long-term consequences? I mean, credit has been pretty cheap for a while in the US hasn't it?
Nothing will help the housing market, because it's far too inflated and it needs to come down around the order of a metric fuckton. It will, and hopefully next time banks will be smart enough not to give out stupid loans for house flipping (or whatever the new craze happens to be), or failing that some legislation will stop their hand.
See before I took this Economics class an MPC of .99 wouldn't mean anything to me. Now I go "D:".
Is it really that bad?
Of course a lot of people are stupid so if Wal-Mart drops the price of some fancy TV down to $550 for the next month or two a lot of people will throw their money at them.
You know, it really could be like that Futurama episode. Only not as humerous.
I'm going to buy 100 cups of $6 coffee. And then when I hit the 100th cup...zoom!!!
Alternatively the refund for my g/f and me will go towards wedding costs.
Magic Online - Bertro
I read an article yesterday that said the first checks should arrive in mailboxes in May and that most people had to just file their taxes to recieve a check.
Also, if you already received a refund on your taxes this year and had it direct deposited, the rebate will be deposited in the same account. You won't have to wait on the check.
Well when I had my taxes done my accountant said that in the past when they've done similar things the order it's gone out was based on the last four digits of your SSN.
This will not stem the tide of home foreclosures.
This will not lower energy costs.
Given that those are pretty much the biggest problems with our economy right now, I don't see this as helping much. If this was a standard recession caused by a simple dip in consumer demand or surplus inventory, then sure, give everyone some money. This is all the politicians in congress wanting to Do Something before elections roll around in November. I doubt even they really expect it to help anything.
In the mean time, everyone can enjoy the $600+ they're borrowing from the Chinese.
Well the problem is that #2 is the main reason we're in a recession, and fixing it will make #1 and #3 worse. Luckily the Federal Reserve has made some pretty solid moves along with numerous other central banks worldwide to increase liquidity, though we're going to have to deal with the overall effect that will have on inflation.
As to energy costs, that's really just a symptom of both inflation and the futures market, and we're going to have to deal with $100+ barrels of oil for a while. People are going to keep buying up oil futures projecting increases in price, despite increases in supply.
The sad part, Jeffe, was that the original proposals actually did have some good ideas that would have helped the economy.
Want to guess who scuttled those?
edit: I'm refering to the injection that the fed did, not the payouts to taxpayers.
The act of printing more money when you have no money is not going to help us at all.
The US is spending more than it's bringing in. In a big way. With credit lines and loans and what not this can be sustained to a certain point but we are basically destroying our credit right now because we continue to spend despite having no money behind our name.
The way to fix this is to cut spending not give out free money. We've been giving out free money for the past few years and that is what's gotten us into this mess. The more dollars you put in circulation the less valuable our currency becomes and it's easy to see why we're having problems if you look at our currency compared to others.
Canada used to be .66 US dollars for 1 canadian dollar. It's almost 1 to 1 now. That is not good for us. That means the dollars we hold in our hand are worth less than they were in the past. And that may not mean much locally but all the products and services you buy are likely coming in some part from overseas sellers. Those people aren't going to drop their prices 33% just because our currency falls, the business's that buy things will have to start paying more and that means higher prices for the consumer. That leads to a slowing economy.
You want to fix this, stop spending money you don't have.
This is frighteningly oversimplified and doesn't consider domestic consumer behavior or trade defecits.
I'm also concerned about the people who are saying ''Well when I get the extra $600 I won't be doing anything to benefit the economy, because I will just be paying bills/putting the money into savings/going into more debt."
It's mostly a symptom of developing economies suddenly needing dramatically more oil. Prices have spiked largely because demand has spiked. And demand won't be going down at this point, unless we nuke China, or something.
Perhaps you need to understand how economics works on a wider, global level. Inflation is a byproduct of money being pumped into a growing economy that demands more and more dollars. We've been "giving out free money" along with the rest of the world ever since we left the gold standard. While an inflating dollar is bad for the price of imports, it is a major boost to US exports, thereby creating a demand abroad for US dollars which, surprise, increases the value of the US dollar in return.
It's a balancing act that is at the core of modern Keynesian economics. The government pumps money into the economy to stimulate growth in down times, and takes money out of it to slow down inflation in the high times. By leaving the gold standard the government gained control of this whole process.
Of course, hyperinflation is bad for the economy no matter what because it destroys consumer confidence, but that's only when inflation is in the double-digit range.
Well, you're right about that in the long term, but I'm more focused on the short term, where the oil market is becoming a market in which futures traders are manipulating the price of oil higher and higher regardless of short-term news that should have been enough to curb the recent runaway growth. The demand from developing nations hasn't really spiked in anything close to the proportion that the price has.
Ok, I'll bite. How is paying off debt disconcerting?
Because paying off debt is too long-term. Buying stuff is a short-term boost to economy, albeit small, that is intended to help jumpstart growth and get us out of the recession.
Now, that doesn't mean that it isn't the best choice for the people who get these checks. Most Americans are in some amount of debt, and paying that off is by far the most responsible thing to do. But that's the main problem with this bill, isn't it? It's tough to put the money in the hands of the people who won't put it into a long-term play. What they're banking on is how a lot of people have the tendency to blow "free money" like this on random shit just because.
If you're a neo-keynesian, then the issue of downward-sticky factor prices prolonging a recession is serious one, like Stalin has been emphasizing. However, the US needs to address its massive external debt while it still has the privilege of unlimited world borrowing and address the issues El Jeffe mentioned.
When foreign capital is drawn away from the safety of TBills into other currency, you'll lose the ability to refinance without increasing interest rates. Continuous borrowing creates credit risk for a country and increases the costs of borrowing, suppressing investment and long-term growth. Borrowing all this money isn't bad per se if it creates leveraged gains (i.e. earning a rate of return on the borrowed money higher than what you borrowed it for), but that isn't the case.
and yes, for the character attacks that will follow this argument, I am very comfortable with macro theory
In the grand scheme of things we're all dead. The goal of a stimulus package is to stimulate and some things are going to do it quicker than others.
― Marcus Aurelius
Path of Exile: themightypuck
"One thing is clear: The darkening economic outlook has made Ben Bernanke's job less secure, especially with a new president about to enter the White House. The economists gave the Fed chairman just a 59% chance of being reappointed in 2010. "If a Democrat is elected he won't be reappointed, and [presumptive Republican presidential nominee John] McCain may opt for another, too," said David Resler of Nomura Securities. "The problems occurred on his watch," added Ram Bhagavatula of Combinatorics Capital."
Yah blame Bernanke for it all Ram you revisionist prick. This started well before Bernanke. It's a bit like walking into a bathroom after another guy just flushed and left and the toilet starts to overflow. Then you walk out with water flowing around your feet and everyone is staring at you.
Yes, more money in the system means more inflation. But inflation isn't necessarily a bad thing. The modern economy is growing at a rate at which it consistently needs more money, so that as long as inflation doesn't get too out of control we can have an economy that grows at a significantly faster rate than the inflation rate. The constant supply of money keeps growth going, and the cycle is perpetuated.
National debt, too, is for the most part not an issue as long as it's growth doesn't get out of control. You could make the argument that our current budget policy is growing the debt too much, but most evidence is to the contrary. While the debt has grown significantly, the past 5 years have seen growth in national wealth that has outstripped growth in the national debt.
Let's look at the net worth per-capita for the United States. This is essentially each person's share of the national wealth minus their share of the national debt:
This is in constant dollars, so everything is adjusted for inflation, and still we've seen solid growth.
As for oil, there's really no way to bring it's prices down. In the short term we've got investors artificially pushing the price higher, and in the long term we've got soaring demand in developing nations. Invading Iraq probably made it harder to produce oil there. Basically we just need to wait until price pressures force people into alternative fuels.