"First, he lays out why neither party has the solution for getting people spending."

That's easy to do when you completely misstate the conservative position. We don't just want business tax cuts, we want tax cuts for everyone - businesses and individuals - accompanied by reduced government spending.

Secondly, your friend apparently fails to understand the purpose of these tax cuts. Sure, the end goal is to create jobs and employ people. But that isn't the initial result. The initial result is exactly as he states previously: To get people spending. Cut taxes and you leave individuals (and businesses) with more money in their pockets. Leave people more money, they'll be more likely to spend it - on consumer goods and on increased production and sales of the same. That's where the jobs come from, not directly from the tax cuts.

Conservatives don't expect business owners to get a tax cut and immediately hire someone with it. But tax cuts (and reduced government spending) is the necessary starting point to that end.

It's easy to sound smarter than everyone else in the room when you don't understand (or lie) about what they're proposing.

Meanwhile, your friend's idea sounds pretty terrible. It's still not much more than government redistribution of money, a "stimulus check" with an expiration date. No thanks.

Sorry Amy, this would NEVER be effective. Tried a variation of it twice in our lifetimes (similar ages) - once under Carter, and once very recently (end of Bush term or beginning of Obama, at behest of Congress i believe). Milton Friedman has the best explanation...but it comes down to this. Folks spend the "free" $ on necessities like groceries or clothing, and use the budget savings to pay down their personal debts or build up their 'rainy day' savings. And of course, the taxpayers have an additional debt to pay off down the road, so no free lunch anyway.
I love the blog and the columns, which i just found recently. Keep up the excellent work! LK

What Jake said.

Tax cuts for all would do everything a $100 stimulus giveaway would, with the additional benefit that the cut would apply year after year, not just once, thus providing a yearly "stimulus" effect.

It would also force politicians to choose between structural decreases in govt spending, which are needed, and running higher deficits, which are not.

I seem to recall getting check from the gov't to spend. WHich most of us did. Didn't seem to help much. The amount DH and I pay in taxes is going to more than double next year, between the raise in our rate, and the halving of the child tax credit, and paying taxes on our $2k a month insurance benefits (assuming we keep them, of course). THAT'S what's keeping me from spending.

JakeTaylor - "That's easy to do when you completely misstate the conservative position. We don't just want business tax cuts, we want tax cuts for everyone - businesses and individuals - accompanied by reduced government spending."

And WTF does that have to do with EITHER party which was what he was talking about?

I agree that cutting government spending and taxes is what we should be doing, but I don't see that being proposed by many in congress, in either party.

My grandfather said that democracy works until people learn that they can vote themselves money. I think he's right. Until we find a way to either prevent people from voting themselves money, or convince them that government spending is a bad thing, we're in a shit-hole.

Ditto Jake.

Re your friend's plan - what's the point? Like LK says, people would just spend the "credit card" funds within that week on necessities and use the cash they would have spent to pay down bills, or save it.

Meanwhile, you've got the government in charge of distributing massive amounts of money every week to every person in the country. What could go wrong?

JakeTaylor - "That's easy to do when you completely misstate the conservative position. We don't just want business tax cuts, we want tax cuts for everyone - businesses and individuals - accompanied by reduced government spending."

And WTF does that have to do with EITHER party which was what he was talking about?

Uh, did you miss this part of the article?

They insist cutting business taxes would create jobs. Which makes no sense.

Looks pretty much like what Jake was replying to. The other thing Mr. Launer is ignoring is that when businesses feel the pinch, they start pinching their employees harder, as in, "you're going to have to take up the slack for those two guys we just laid off".

Yes, it could be argued that if that one guy can take over the other two's jobs, then they weren't needed in the first place, but usually it's at the expense of quality, and frequently means that little details get left undone. Plus, you should always have at least SOME extra capacity in case things get busy for some reason, or someone gets sick, or quits, etc.

Allowing businesses to keep more of their money allows them to keep that extra capacity, instead of cutting to the bone. Allowing individuals to keep more of their money allows them to buy more luxuries rather than just the necessities. Giving them money they haven't worked for just trains them to rely on the Government.

Darn it, I goofed up my italics. They were supposed to include the "WTF" sentence in the first group.

At the end of the day tax cuts for individuals are about allowing individuals to decide for themselves how best to spend their money. Instead of top down decisions from government-on-high, individuals are empowered to decide for themselves whether best to spend, save or pay down debt. I would posit millions of little decisions are better than one or two big decisions by government.

Regarding tax cuts for corporations one must understand the corporation simply acts as a collector of those taxes. The tax itself is paid by consumers who are charged a higher price (pass through), the contraction of the business through fewer expenses (usually labor) or less profit for the shareholders (a tax on shareholders). Whatever the case, it doesn't get paid by the evil corporation, it gets paid by customers, workers, owners.

It's been tried, and recently. It didn't work.

The plans where Cash for Clunkers and $8K to buy a new home tax credit. How long did it take for auto sales to rebound? and how did the used auto market respond (hint: prices went up). The housing market? well, with so many homes in various states of foreclosure, that's not going to rebound any time soon.

In fact, aren't sales down since the end of the program? Both programs cannibalized future sales for a one-time spike in sales. Genius.

But hey, let's borrow another $15 billion (or so - 150 million receipents @ $100 each). And just hand people money. For "free". Know what I think? I'll use that "found money" to buy the things I normally would and stuff my own $100 into a sock. Maybe I'm crazy, but I don't think I'd be the only one...

How is it different from just giving someone the money? If you give me $600 cash, yeah, I'll save it. If you give me a $600 card, I'll spend it, but I'll take the $600 I would have spent on monthly expenses, and save that instead. Either way it amounts to not spending it.

I'm with IRA.

Wasn't it Margaret Thatcher who said "The problem with socialism is, eventually you run out of other people's money."?

This guy Dale really has an elementary view of the economy. The bottom line is people are afraid, and the prudent thing to do in times like these is to curb your spending.

People are afraid because they have seen enormous declines in a short period of time in the values of their homes, retirement accounts, and incomes. Handing out a few hundred bucks to the middle class family means dick when their net worth has suddenly dropped by 28%.

Americans are afraid also because they have no trust in their government, no reasonable expectation that Wall Street will be reformed in any meaningful way, and pretty much the entire country is one cancer or heart attack away from bankruptcy, insured or not. Affording college today for your children is a joke, so figure on graduating with $50k+ in student loans. I think there is also some element of anxiety that has turned into a mild form of shell shock that we are not 10 years at war, and every election they trot out the latest in terrorist warnings.

here's a good one for human nature...

instead of calling it a "Tax Cut" you could call it "taking less of your money from you"
I know, not catchy... but people often a SEP block when it comes to taxes... SEP is Somebody Else's Problem. They wall of taxation and try not to think about it, because the system is so complicated, so they don't think about what a Tax Cut actually means.

But there is one catch. For income taxes, the top 55% of earners pay ALL of them anyway, and it is taboo for most politicians so talk about allowing "The Rich" to keep more of their money. Because like "Tax Cuts", "The Rich" is a completely loaded word, that many, many people don't wish to think about. People who vote these clowns in... They talk about the "Bush Taxcuts" benefitting the rich, as if they didn't cut rates for everyone.

Bah, it may be wrong in some counterintuitive way, but letting me keep more of my own money will make me feel more secure. I might just spend some cash on new jeans instead of combining several pairs into one that doesn't have tons of holes in it.

"How is it different from just giving someone the money? If you give me $600 cash, yeah, I'll save it. If you give me a $600 card, I'll spend it, but I'll take the $600 I would have spent on monthly expenses, and save that instead. Either way it amounts to not spending it."

Absolutely correct Nicole, and the ultimate economic reason is that Amy's friend does not understand that money is fungible. This whole scheme rests on consumers spending the government credit card on stuff that they don't really need, as opposed to stuff that they will buy anyway (like the Grocery store). Until consumers have confidence that they will still have a job that will pay the bills 8 months down the road, which many people don't, they aren't going to be making any long term commitments to new spending and government infusions of cash in the form of credit cards will do nothing but increase the deficit, causing the government to print more money, which may eventually lead to hyperinflation as the currency becomes devalued. Of course, this is what the dems rally want as it will allow the under capitalized pension schemes to pay off their obligations in funny money which means that those defined benefit retirement plans that so many of the public employees rely on, might cover their utility bills in 15 years but darn little else. Unfortunately the people who really get screwed when the currency is devalued are those who have saved, rather than spent as it makes their savings worthless which is why when there is danger of hyperinflation people start buying guns, and gold, things that they hope at least will hold their value in inflation adjusted dollars. For a good example of devalued currency read about either current day Zimbabwe, or the Wiemar republic in Germany post World War I.

The problem is too much private debt which was used to fuel the stock and housing bubbles. The solution is to unwind that debt and for asset prices to fall relative to income. Gov't spending does not solve the problem and might make it worse by artificially propping up asset prices. There is no good solution to insolvency.

"You employ more workers only if it makes you more money. And if makes you more money by employing more workers, you'd do it anyway. Tax cut or no tax cut. After all, the cost of labor is deductible."

As a business owner, I disagree. We employ people not just to make more money but to give ourselves more free time/less work. When things are good, money rolling in, we happily hire more employees to do things we'd rather not have to do ourselves. But in a bad economy, small business owners end up taking on many of these tasks. Higher taxes just add to our problems and prevent us from hiring.

Plus, this kind of spending stimulus never works because the amount given isn't significant enough to make a difference in anybody's financial picture, whereas lowering taxes for a business, providing significant savings year after year, can really change things.

(Further) Increasing the money supply is not an economic fix, it's inflation by definition. This idea is as sound as "let's raise the price of everything" - except for the early waves of card getters, they'd get the most value.

This idea has one huge erroneous presumption - that is, that we need to spend money for the sake of. To "stimulate" the economy. Bubbles, bubbles, bubbles..

Money too is subject to the laws of supply and demand. Saving money is good, not bad. Stop encouraging spending as if it's some sort of socio-moral duty of ours. When we save money, banks have more to lend, interest rates drop, businesses borrow and build. When banks run low on money, they raise interest rates to encourage you to save. Supply and demand.

Or... We have a central bank to really screw things up, the bankers bank - our bless-ed Federal Reserve. Who's got their finger stuck on the supply button AND artificially keeping interest rates low.

It's a Keynesian scheme. Take money out of the private economy by taxation or currency devaluation and then put it back into the private economy after charging a hefty bureaucratic surcharge. In the aggregate, you'll get no net change.

Why aren't people buying more stuff? Because it costs too much in nominal dollars. Real inflation rates are three to five times higher than reported.

People don't want to save money. They want to spend it. They know that given inflation, the real savings rate is negative. But stuff is getting more expensive in nominal terms.

Through fiscal and monetary policies, the government is impoverishing the citizenry. It is a giant banking and finance scam run by a gangster government. Giving more money to the gangsters to give to us, it isn't going to do anything.

The wrong diagnosis leads to disastrous policy, particularly when based on non-scientific but convenient dogma.

For example, George Washington was probably killed by draining out his blood, according to the medical theory of "bad fluids". How could doctors believe such a crazy thing? Because the body is complicated, they could not easily relate cause to effect, and they wanted to "do something, anything" to cure disease.

→ intelihealth.com/IH/ihtIH/WSIHW000/3532/35326/396069.html?d=dmtHMSContent

Over the years, bloodletting likely harmed more people than it helped. In fact, George Washington is said to have lost over three quarts of blood in his last days as a result of the use of leeches. Many historians credit the loss of blood as the cause of his death.

Why Stimulus Doesn't Stimulate
→ www.sacbee.com/2010/10/01/3071526/why-stimulus-doesnt-stimulate.html
→ Via Cafe Hayek - cafehayek.com/2010/10/some-links-50.html

Fred:  We will all have jobs soon. The government is spending more on everything.
Mike:  Who is going to do the hiring? I'm investing less in everything.
- -
10/01/10 - Sacramento Bee by economist Ribert Higgs

[edited]  Team Obama theorizes that additional government spending (demand) will cause businesses to boost production, add jobs, and trigger additional consumer spending that will ripple through the economy for a stronger overall recovery.

Yes, consumer spending is about 70% of America's gross domestic product, and an increase in consumer spending would provide an immediate boost. But, consumer spending increased slightly as a percentage of GDP during the downturn.

There was no decline in consumer spending, so what caused the downturn? Answer: a sharp decline in private investment. To revive investment, the government needs to stop threatening the profits from investment and remove the regulation and uncertainty that paralyzes new, long-term projects.

- -
→ 06/26/10 - Easy Opinions - DIY Stimulus Policy

You too can do economics on a cocktail napkin, just like the guys from Harvard Business School. Don't be afraid of a few equations. They are only addition in a form that will impress your friends and the general public.

Spending is not an end in itself. Obama (and Christina Romer, Obama's outgoing Chair of the White House Council of Economic Advisers) are pushing an economic analysis that is fundamentally, crazily backwards. We don't spend money to create jobs, we organize jobs to provide useful things. We should apply the least resources (money) that we can toward producing those useful things.

The result of spending is what is produced. That is it. The money is not fairy dust spreading wealth to whoever touches it. The money represents say a basket of groceries that is traded in exchange for producing something useful.

At best, government spending buys (with great inefficiency) absolutely necessary things such as military arms that only a government can control. At worst, government passes out money to friends and contributors, producing little of value to the general society, under the cover story of producing jobs.

Every dollar of government funds has been or will be taken from someone who has produced, or will be expected to produce something useful. He has worked hard for that dollar that the government takes away in taxes.

Christina Romer made revealing remarks at her farewell luncheon, and authored an official report to the President about the stimulus which is not worthy of a freshman paper in Econ 101.

→ Romer and Obama are Theoretically Correct
But only in accord with a flawed theory and ridiculous analysis.

"Every dollar of government funds has been or will be taken from someone who has produced, or will be expected to produce something useful. He has worked hard for that dollar that the government takes away in taxes."

Exactly. It does no good whatsoever to take from the producers to give out money to the population in hopes they'll give it back. What difference are you making?

"we need to boost consumer confidence" Er no we don't. Part of the problem is that consumer confidence was way to high in the past. People thought the good times would never end, so go into debt buy the overlarge house, it will always be sellable for more.
We had negative savings, meaning most people owed money they didn't have.
People saving is a good thing and when peole feel their saviongs are enough they will spend again, hopefully not as excessively as they did before.

It all boils down to, the Average American has too much stuff that they don't even use we needed a reality check. The reality won't be the crazy time we had 10 yrs ago, that time wasn't sane any more than people never spending is sane.

Years of a lousy economy have left my 401K a bit short of where it should be.

I can't get the time back. The government doesn't have enough money to make it OK, even for a "not rich" guy like me.

If you want to fix it, I've got the solution, and you're not going to like it. How much government are you willing to give up? I'd let HEW minus the CDC go today. Ditto for the Agriculture department. Much of Commerce could go. I'd argue for keeping the FAA because I don't want planes falling out of the sky. BATF and the DEA can go...

Most of this didn't exist when I was a kid, and we survived without it. You can, too.

That hundred bucks won't cover half of the increase in my school taxes. It isn't one day's pay out of the 4 weeks of furlough I got hit with. (Did you see where incomes fell in NY for the first time ever. I did my share.)

I'm paying off my debts so I can survive.

The goal of business is to make profit, not to employ people. Ergo, in times of boom or bust, a business employs as few people as possible because it strengthens the bottom line.

No, a business employs the number of people necessary to do the job it needs done at the level at which it needs it done - or at the level at which it needs to in order to keep up with the competition.

In times of prosperity, businesses can afford to hire an extra account rep or sales person to give more personalized service or extra customer service folks to increase the service levels for customers or new staff to work on new projects.

In bust times, businesses may cut back on floor help, phone help, new projects staff, etc. - reasoning that lower levels of service and fewer new products will not drive customers away (since the competition is also feeling the pinch and making cutbacks).

The problem with our economy and our entire country in general is that they believe that they are poor with two vehicles, telephone services, cable and color television, a roof over their heads and a floor beneath their feet, breakfast, lunch and dinner, etc. etc.

Until I see some statistics about people starving to death in America, I'm not willing to say that our economy is that bad off.

People aren't spending because they don't have money, and people don't have money because hello, the government takes most of every spare dollar you earn and wastes it on the largest government in human history.

Amen, Lobster. I just looked at my "proposed property taxes", and although my values have dropped significantly, they changed the millage rate so that my taxes are actually higher this year! I own a 2.8 acre parcel, for which my yearly property taxes are $18,000.

This year, my business managed to survive the slower economy AND the threatening oil spill, yet I definitely made less money. But government rarely cuts itself. They still get a raise! How is that fair?

Higher property taxes is one reason people in my state couldn't afford to hold onto their homes, resulting in the mass of foreclosures. It wasn't just the banks (though they're certainly to blame).

We need to cut government. Let people keep more of what they make, and they'll feel more comfortable spending again.

I doubt the credit card idea will work. Money is fungible and I'll just buy some necessities I have to buy anyways and use the difference to enhance my preps against future uncertainty.

If the government really wants to promote consumer confidence, start cutting budgets. At least ten percent per year until the budget is no more than half what it is now. Unfortuinately that will take seven (OK, 7.272) years and few politicians care about anything past the next election cycle.

Government issued credit card? Just where does he suppose the money to pay for this would come from? Who decides who gets it and when? How long will people wait for their turn?

This is a stupid idea that was done already. It was called The Stimulus Package.

"At least ten percent per year until the budget is no more than half what it is now."

Now there's a 10/10/10 that I could actually support.

What a lame suggestion.

Money from gov't disbursements isn't free, it has to come either from taxation, borrowing, or "monetization of the debt", which is initiated by Federal Reserve purchases of Treasury securities. While debt monetization is unlikely to be highly inflationary today, it certainly was in the past, notably the 1970s. Debt monetization also has the effect of leading holders of existing securities, and potential buyers of securities to be issued in the future, to be more wary of purchasing U.S. Treasury securities, because it says to investors that Uncle Sam is being very careless about gov't finances.

A primary reason that the economy is, at best, growing slowly now, is because so many people are "deleveraging" - reducing their debts. In so doing, they are paying now for past consumption on credit. Financial writer Ashby Bladen (don't know if he's still alive) wrote about 30 years ago that debt-to-income levels cannot rise indefinitely. They rose to pretty high levels prior to the onset of the current recession. Other reasons for slow economic growth: the rate of savings is up (it was at very low rates a few years back), and new lending is potentially very risky for banks these days because without the housing bubble popped, they are holding a lot of mortgages and other loans which they're unlikely to get anything near to 100% of their invested capital back on.

As recently as the early '80s, the personal savings rate was about 10%, and it was about that for decades before then. Then Americans stopped saving like they used to. A return to a higher savings rate, is, ultimately a good thing, as is deleveraging.

There's NO easy fix for today's economic problems. Those of us who are fortunate enough to have jobs and have some spare $ can help those in distress by contributing to charities (I do some of that.)

Wasn't there some idea floating around at some point about some very small tax cut, that would end up putting something like $10 in everyone's pocket per week? I can see myself spending the extra $10. It's when it's a big chunk that I tend to hold onto it... did they ever implement it?

But yeah, ultimately the thing to do is get industry to come back. I mean, when I'd drive through North Philly, sometimes I'd shake my head and sigh, "Why can't these people get jobs" but... WHAT jobs? You need capital to start a business, and if there aren't a lot of businesses where you live, you need transportation to get to where the businesses are...

The "Previous" button on this page doesn't work.

sock away?

WayneB - I didn't miss anything, but I guess I failed to get my point across, which was that neither party has anything to do with fiscal conservatives. Unless you can show me more than a handful of Republicans that act like a fiscal conservative, then I state in another way that the author of the article that Amy posted was claiming something about Republicans that had nothing to do with a fiscal conservative's position, and therefore couldn't be miss-stating.

One thing that should be emphasized: a tax is supposed to be a fraction of the cost of a transaction, to promote and enable the control of such transactions.

When you let it get out of hand - to fund all sorts of things you cannot even name - you let this happen.

$10 for every American? The thing is, in order to put $10 in the pocket of someone who doesn't pay taxes (roughly 50% of the population), you're going to have to take $20 from someone who does.

Hello Everybody, My name is Mr Shed Plans aka Todd Phelps. Thank you for the great post I look forward to reading your blog. I will come back soon to check for new articles. Thanks

Are you making this up as you go along?