Americans are Producers, Not Consumers

Have you ever noticed that the only attention Americans get from this administration is when they stop shopping?

Bush announced a $145B Economic Stimulus plan that is in the form of tax rebates. He wants to put a whopping $800 dollars into the pocket of every single tax paying American.

Even Bruce Barltett, a former Bush administration member, said:

There is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political -- giving politicians a way of appearing to be doing something about the nation's economic problems that is superficially plausible.

A new rebate probably won't do much harm. But anyone who thinks it will prevent a recession -- if one is actually in the pipeline, which is not at all certain -- is dreaming. It's an insult to Keynes even to call a tax rebate Keynesian economics. It should be called feel good economics because its only real effect is to make politicians feel good about themselves and buy re-election with the public purse

$800 bucks is supposed to magically generate the increase in demand for goods and services needed to increase GDP. There are a couple of problems with that. The first is most of the goods in the United States are imports, they are not goods produced in the United States. This also assumes Americans are not paying down debt. The second point is when someone is out of work or being paid repressed wages, $800 bucks won't even pay 1 months rent in most parts of the country. It might pay one or two months of credit card interest. A one time tax rebate is like putting $20 bucks in the can of the homeless guy. It ain't gonna get him off the street and back on his feet.

The reality is Bush's tax rebates had little effect. Without moving to increase productivity and jobs, good paying jobs, odds are Americans will use this money to pay off debts in inflationary areas, such as health care, predatory interest rate debt. What about adding federal spending to the area of public works? The United States infrastructure is in desperate need: bridges, roads, you know that dirty word called public works. Investment in critical public infrastructure will generate jobs.

What about taking on some trade violations with China? What about some methods to increase the production of goods to offset our trade deficit? What about stopping the foreclosures for those with predatory loans? What about removing the tax incentives to offshore outsource production and jobs? How about creating disincentives for the private equity corporate raiders who destroy companies for profit? How about stopping excessive CEO compensation rewarding those who are incompetent?

Paul Krugman points to the United States being akin to some of the 3rd world economies and their dramatic economic downturns:

The real sin, both of the Fed and of the Bush administration, was the failure to exercise adult supervision over markets running wild