Stimulus doesn't work, but tax breaks for the rich do? [Archive]

pgwenthold

9th September 2010, 11:10 AM

If tax cuts for the rich are supposed to stimulate the economy by encouraging them to hire people, why not eliminate the "possibles" and "probables" in there by making it a definite? Give them a tax break conditional on them hiring somebody for something at a rate that is some percentage of the tax break. A real incentive, a real reward, a real benefit, a real advantage. Sounds better than all the guessing that if Beyonce had a million more dollars she'd hire twenty more hair stylists with it.

Stop saying things that make sense.

Of course, this is predicated on false pretense, that tax cuts for the rich are supposed to promote hiring.

Why would they do that? The only reason that companies will hire people is if they need someone to operate their business, either in production or service. Regardless of the tax breaks, no one is going to pay an employee to sit around and not do anything. If no one is buying cars, it doesn't make any difference how many tax cuts you give them, car manufacturers aren't going to hire people.

This is not a chicken and egg situation. Workers get hired when needed. End of story. No one hires workers so that they can have money to go buy groceries, which will allow the grocery store to hire more people, which will allow them to have more money which they might spend at your business. That is foolish on the face of it.

Even one of the local rightwingers has pointed out that business cash reserves are currently at exceedingly high levels (something like $7 trillion). Why are they so hight? Because there is nothing to spend them on. There's no production costs, and human resource costs are minimal. So they sit on their cash. They won't invest it until there is hope for a return. That means customers.

I'm not saying this is your mistake, you are just exposing the lie that they are making. Actually, it's not so much of a lie as an obviously stupid idea. Yet, some people still fall for it...

drkitten

9th September 2010, 11:31 AM

The reason that raising taxes on 'the rich' is a bad idea is that increasing marginal tax rates (http://www.econlib.org/library/Enc/MarginalTaxRates.html) reduces economic growth. Additionally, most job creation comes from small businesses, many of which are sole proprietorships (http://www.nolo.com/legal-encyclopedia/article-30292.html) where the business income is paid as personal income tax.

Bad example. The sole proprietorship actually ends up being an argument in favor of higher marginal tax rates.

Remember that businesses, including sole proprietorships, pay taxes net of expenses, including employee salary as well as equipment purchases and whatnot. Raising the marginal tax rate makes it less profitable for already profitable companies (including sole proprietorships) to hold cash positions because they need to pay more money on that; they're better off investing the money into the business, for example, by buying more equipment or hiring more people.

Buying equipment increases consumer demand and stimulates the economy. Hiring more people creates jobs and stimulates the economy. Holding a cash position, on the other hand, simply creates more money in the bank to just sit there (that's one of the current problems with the economy; money in the bank is indeed "just sitting there" because banks themselves are sitting on cash positions or buying Treasuries instead of lending it out -- which would also stimulate the economy, but it's not happening.)

So, basically, raising the marginal tax rates would force successful small business to create jobs and increase demand, which would in turn help marginal small businesses become more successful (because of the increased demand).

That's an argument for increased marginal tax rates.

ServiceSoon

9th September 2010, 11:35 AM

I am not convinced the actual tax rate (at this point in time) matter as much as certainty.

Presently, no one is sure how the Health Care requirements are going to actually shake out, there is talk of lowering, raising, or leaving the present tax rates alone - simultaneously, there *might* be more stimulus spending, there *might* be further rate changes for mortgages and investments, there *might* be cap and trade, there *might* be sigificant increases in capital gains rates . . . .

Personally - and this is opinion only - I am not surprised a lot of businesses are looking at what they don't know about very near future and deciding thi is not the time to rush out and hire a bunch of new people.I agree with this. There is so much uncertainty right now that very few people (rich, poor or anywhere in between) are taking any risk. Whether this risk is a rich person adding any employees, expanding their business or the middle class person buying a new car, eating out, etc.

drkitten

9th September 2010, 11:44 AM

I agree with this. There is so much uncertainty right now that very few people (rich, poor or anywhere in between) are taking any risk. Whether this risk is a rich person adding any employees, expanding their business or the middle class person buying a new car, eating out, etc.

Which again becomes an argument for a directed stimulus that puts money to specific purposes instead of a general undirected one like a sustained tax cut.

Cut taxes right now and poor people will put it into a cookie jar. Middle class people will put it into the IRA. Rich people will buy another round of T-bills.

Give a tax cut for buying styrofoam peanuts, and people who weren't sure whether or not they needed packing material will buy lots of peanuts and the manufacturers will increase production, which means they need more employees and raw materials.

Or bicycles. Or pineapple chunks in syrup. It doesn't much matter what people spend a new round of stimulus on as long as the stimulus gets spent.

ServiceSoon

9th September 2010, 11:53 AM

Bad example. The sole proprietorship actually ends up being an argument in favor of higher marginal tax rates.

Remember that businesses, including sole proprietorships, pay taxes net of expenses, including employee salary as well as equipment purchases and whatnot. Raising the marginal tax rate makes it less profitable for already profitable companies (including sole proprietorships) to hold cash positions because they need to pay more money on that; they're better off investing the money into the business, for example, by buying more equipment or hiring more people.

Buying equipment increases consumer demand and stimulates the economy. Hiring more people creates jobs and stimulates the economy. Holding a cash position, on the other hand, simply creates more money in the bank to just sit there (that's one of the current problems with the economy; money in the bank is indeed "just sitting there" because banks themselves are sitting on cash positions or buying Treasuries instead of lending it out -- which would also stimulate the economy, but it's not happening.)

So, basically, raising the marginal tax rates would force successful small business to create jobs and increase demand, which would in turn help marginal small businesses become more successful (because of the increased demand).

That's an argument for increased marginal tax rates.You talk a lot about "successful" small businesses, should I assume that we don't care about businesses that will fail due to higher taxes?

Putting more stress on the backbone of the economy. Your scenario just sounds mean.

Your example sounds great, until you realize that every CFO is going to react differently to higher taxes. People are unpredictable. Speaking of people...the news headline from such an event (re: tax increase) would cause panic in the market.

TragicMonkey

9th September 2010, 11:55 AM

Or bicycles. Or pineapple chunks in syrup. It doesn't much matter what people spend a new round of stimulus on as long as the stimulus gets spent.

I now have a craving for bicycle chunks in syrup.

ksbluesfan

9th September 2010, 12:02 PM

You talk a lot about "successful" small businesses, should I assume that we don't care about businesses that will fail due to higher taxes?

Putting more stress on the backbone of the economy. Your scenario just sounds mean.

Your example sounds great, until you realize that every CFO is going to react differently to higher taxes. People are unpredictable. Speaking of people...the news headline from such an event (re: tax increase) would cause panic in the market.

Do companies pay taxes if they have a net operating loss?

joobz

9th September 2010, 12:23 PM

You talk a lot about "successful" small businesses, should I assume that we don't care about businesses that will fail due to higher taxes?

Putting more stress on the backbone of the economy. Your scenario just sounds mean.

Your example sounds great, until you realize that every CFO is going to react differently to higher taxes. People are unpredictable. Speaking of people...the news headline from such an event (re: tax increase) would cause panic in the market.

I'm fairly sure businesses pay taxes only on their annual profits.

joobz

9th September 2010, 12:28 PM

It doesn't much matter what people spend a new round of stimulus on as long as the stimulus gets spent.
I thought the object of investment DID matter? For instance, just spending money on ditch digging would result in a whole bunch of holes, which could create its own set of problems economically. Best examples I can think of is world fair areas or Olympic parks. How many of these parks actually benefit the countries long term?

However, investment into things that have both the stimulating advantage AND a real use (e.g., infrastructure, new useful technology, education...) is when you will see a great benefit.

Bob Blaylock

9th September 2010, 12:56 PM

I keep seeing republican pundits on TV saying that stimulus doesn't work, but also that you can't raise taxes on the rich in a recession.

The problem with “stimulus” programs is that they consist of government spending money that it took from someone who probably would have otherwise spent it more usefully somewhere else. It's a zero-sum game. Government can't give money to anyone without taking it first from someone else.

Government could, for example, decide to give a “stimulus” to the widget industry, either directly giving money to that industry, or giving consumers some sort of bonus or tax break for buying new widgets. The Widget industry would then show some significant growth, and new jobs being created, and such, but at the same time, the money that consumers would be spending on widgets, they won't be spending on gadgets that they otherwise might have bought, so the gadget industry would be harmed as much as the widget industry is helped.

It's rather like Bastiat's Broken Window Fallacy (http://en.wikipedia.org/wiki/Parable_of_the_broken_window), without the explicit destruction. I might as well remind you, while I'm at it, that we currently have an administration that has implemented at least one “stimulus” plan that was, in fact, exactly based on the Broken Window Fallacy (http://en.wikipedia.org/wiki/Car_Allowance_Rebate_System), in which wealth was deliberately destroyed on the theory that doing so would help the economy by creating jobs to replace that destroyed wealth.

joobz

9th September 2010, 01:46 PM

The problem with “stimulus” programs is that they consist of government spending money that it took from someone who probably would have otherwise spent it more usefully somewhere else. It's a zero-sum game. Government can't give money to anyone without taking it first from someone else.
The problem with this view is that there wasn't spending to begin with. Hence the recession. So, the idea that money would have been put to "Better use" is simply flawed.

Dr. Keith

9th September 2010, 02:12 PM

You talk a lot about "successful" small businesses, should I assume that we don't care about businesses that will fail due to higher taxes?

Putting more stress on the backbone of the economy. Your scenario just sounds mean.

You can't tax a business to death with changes to the top personal income tax rate. Simply not possible. If you disagree I'd like to see an example/hypothetical. this sounds like the return of Joe the Plumber.

Your example sounds great, until you realize that every CFO is going to react differently to higher taxes. People are unpredictable. Speaking of people...the news headline from such an event (re: tax increase) would cause panic in the market.

How many business that have a CFO are affected by the personal tax rate?

If we tell them that the new taxes will still be far lower than the rates were during the Reagan era do you think they will still be scared?

lomiller

9th September 2010, 02:26 PM

Government could, for example, decide to give a “stimulus” to the widget industry, either directly giving money to that industry, or giving consumers some sort of bonus or tax break for buying new widgets. The Widget industry would then show some significant growth, and new jobs being created, and such, but at the same time, the money that consumers would be spending on widgets, they won't be spending on gadgets that they otherwise might have bought, so the gadget industry would be harmed as much as the widget industry is helped.

The people employed by the increased widget production would have bought neither widgets nor gadgets because they had no job at all can now buy both and the people who only wanted a set number of widgets, can now buy them for less and spend the extra on gadgets.

Your mistake is in assuming that economic activity is a zero sum game, it’s not. When either the money supply or the speed of money increase it makes it possible for both widget makers and gadget makers to sell more of their products. The only practical limitation is that sooner or later you run out of people willing to work for current wages so you have to pay more and raise your prices accordingly. Unless you think the US is running out of people looking for work, your basic premise is wrong.

drkitten

9th September 2010, 03:21 PM

Your mistake is in assuming that economic activity is a zero sum game, it’s not.

Yeah. And that's an econ 101 mistake. As in, if you passed econ 101, you don't make that mistake. If I have peanut butter but no jelly, and you have jelly but no peanut butter, we're both better off if we can make a trade, and we're better off still if the governmetn subsidizes a baker so we can make it a three-way. The value of goods is not fixed, not intrinsic, and depends on each individual person's needs.

Money (including tax money) is a good in this sense. It's more valuable lent out to a company than it is in my pocket, which is why the bank will pay me for my money which it then lends out. And the whole point of the market -- including the money market -- is to try to find a way to move goods to the place where they're the most valuable.

The econ 102 mistake that Bob is making is assuming that the market is the only or even the best way to move goods around. It's well known that there are some circumstances where the market works really well and others where it doesn't; the supply of "public goods," for example, is well-known as a case where the free market fails utterly. So the idea of moving money by taxing enterprises and using it to purchase public goods is a better/cheaper/more effective way of increasing the supply public goods than allowing participants in the free market to (not) invest in them. Hence using public stimulus to invest in infrastructure makes a lot of sense.

Basically -- and I've said this before -- opposition to the stimulus is the Young Earth Creationism of economics. The only way to make the case for this is to tell transparent lies that blatantly contradict the real world. In the case of post #19, some of the lies include : "spending is a zero-sum game," "the stimulus is an example of the broken window fallacy," and "Cash for Clunkers destroyed wealth." Other threads have already dealt extensively with these -- suffice it for now to say that there is not an ounce of truth in any of these, and the only way that Bob (or anyone else) could make those statements is by deliberate and willful falsehood.

drkitten

9th September 2010, 03:23 PM

You talk a lot about "successful" small businesses, should I assume that we don't care about businesses that will fail due to higher taxes?

Nope. Nor do we care about leprechauns.

A small sole proprietorship that is earning $250,000 per year net of all expenses is not going to fail due to higher taxes. And if it's not earning a quarter of a million dollars in net profits, then it's not going to be taxed higher under the proposal to restore income tax rates for earners above that.

drkitten

9th September 2010, 03:31 PM

I thought the object of investment DID matter?

Not as far as the stimulus is concerned.

For instance, just spending money on ditch digging would result in a whole bunch of holes, which could create its own set of problems economically. Best examples I can think of is world fair areas or Olympic parks. How many of these parks actually benefit the countries long term?

But the stimulus isn't long term.

The whole point of the stimulus is to get money moving that otherwise wouldn't be moving.

The best thing we could do for the entire economy is for everyone to go out and spend 20% of their savings tomorrow. On anything, it doesn't matter what. All of a sudden, everyone would see their sales jump, stores would see their inventories drop dramatically, suppliers would get orders to restock those inventories and have to increase production, people would have jobs working for those suppliers, and the economy would be running again.

But I'm not going to go out and deplete my savings tomorrow if I don't know that I'll have a job in a month; I may need that money to live on. But that means that I'm not buying stuff, that stores are sitting on unsold inventory, that suppliers are seeing reduced orders and cutting back, and people are being laid off.

It's the "paradox of thrift." A high level of consumer spending in this situation is a classic example of a public good that the market won't deliver because each individual actor wants to maximize their own utility, not the utility of the economy as a whole.

So, if I can give the twenty million Americans without jobs something to do -- even digging holes, or canning bicycles in syrup -- then they'll be willing to spend their savings accounts. That's the idea behind the stimulus. And once they're spending, companies will start wanting to hire them to do other things than dig holes and I won't need to pay to have as many holes dug.

However, investment into things that have both the stimulating advantage AND a real use (e.g., infrastructure, new useful technology, education...) is when you will see a great benefit.

You will see the stimulus benefit from simply putting people to work and getting them spending. But as long as you need to put them to work, you might as well get them to work on something useful. The stimulus would still work if people were canning bicycles, but they might just as well build a high-speed rail link that will reduce the costs of doing business instead.

Marcus

9th September 2010, 04:02 PM

I'm fairly sure businesses pay taxes only on their annual profits.
As a sole proprietor, I pay income tax on taxable income, but social security(self-employment) tax on net profit.

I won't be buying any new equipment or making other investments in the business unless they are actually needed, it would be foolish to do so just for the tax consequences.

ETA: I assume you are only talking about federal taxes, on the state level there are taxes to be paid on things like inventory and equipment (argh).

ServiceSoon

9th September 2010, 10:12 PM

Consumers are doing exactly what they need to do, pay down debt so that we can start all over with our boom and bust economy again. Gov programs that add to our debt which encourage spending are only decreasing the peak of the next cycle and/or prolonging the recovery.

I'm fairly sure businesses pay taxes only on their annual profits.Agreed. Net operating losses can be used in 2 different ways. 1. They can be used on the last taxe cycle to receive a rebate. 2. They can be used to reduce the future tax cycle tax obligation.

Do companies pay taxes if they have a net operating loss?No, but they aren't going to stay in business, expand, or provide pay increases, etc if it's not profitable.

You can't tax a business to death with changes to the top personal income tax rate. Simply not possible. If you disagree I'd like to see an example/hypothetical. this sounds like the return of Joe the Plumber.If consumer spending accounts for 66% of the GDP, and a healthy chunk (http://articles.latimes.com/2010/may/16/business/la-fi-consumer-spending-20100516) of that comes from the Rich; can you see my hypothetical now?

How many business that have a CFO are affected by the personal tax rate?It's not about the CFOs' personal life decisions, it's about what recommendations the CFO will make to investors/owners about future revenue projections. It's about the markets reaction to a proposed tax increase. We're living in a psychological thriller right now. Nobody knows what will happen if taxes are increased. It's less problematic to avoid this move right now. I don't drink and drive, and we shouldn't raise taxes at this moment.

If we tell them that the new taxes will still be far lower than the rates were during the Reagan era do you think they will still be scared?Haha. If only economics, ideologies was an exact science. I honestly believe that if everybody agreed on how to fix this we would've already been on the road to recovery. Human psyche is a real...:covereyes.

Bob Blaylock

10th September 2010, 12:45 AM

Your mistake is in assuming that economic activity is a zero sum game, it’s not.

Government programs are a zero-sum game. Government doesn't spend any money, anywhere, without taking at least that much money from the taxpayers.

Private enterprise creates wealth. Money is spent on activities that turn raw materials and labor into goods and services that are worth more than the cost of producing them.

Government does not create wealth. Government only consumes and redistributes it. Wealth consumed by the government is wealth that isn't being used to create more wealth, as it would be if left in the hands of those from whom government took it.

Your mistake is in assuming that government will put any wealth to better (or even nearly as good use) as those from whom government took that wealth.

The current administration has taken billions of dollars from taxpayers, and outrageously squandered and wasted it. In so doing, it had done great damage to the economy, while pretending that it was doing it to help the economy. This is money that would have done much, much, much more good, if those to whom it rightfully belonged were allowed to keep it and spend it for their own purposes.

Bob Blaylock

10th September 2010, 01:00 AM

Basically -- and I've said this before -- opposition to the stimulus is the Young Earth Creationism of economics. The only way to make the case for this is to tell transparent lies that blatantly contradict the real world. In the case of post #19, some of the lies include : "spending is a zero-sum game," "the stimulus is an example of the broken window fallacy," and "Cash for Clunkers destroyed wealth." Other threads have already dealt extensively with these -- suffice it for now to say that there is not an ounce of truth in any of these, and the only way that Bob (or anyone else) could make those statements is by deliberate and willful falsehood.

Amazing!

You're telling us that the “Cash for Clunkers” scam did not destroy wealth, and then accusing me of “deliberate and willful falsehood”?

Destroying wealth is exactly what the “Cash for Clunkers” scam did. That was its purpose, its intent, and its effect. Every car that was destroyed under this fraudulent, outrageous scam, left the economy poorer by the value of that car in addition to the value of the labor and resources used to destroy it.

Only through “deliberate and willful falsehood” could you or anyone else possibly claim that it did otherwise.

MikeMangum

10th September 2010, 04:35 AM

Doesn't it all depend on where you are on the Laffer Curve? There's a point of optimum balance between income from taxes and economic growth, or so I've gathered.

The Laffer curve doesn't have anything to say in regards to economic growth; the Laffer curve deals with tax rates relative to tax revenues, not economic growth. Of course, expanding the tax base (growing the economy) also increases tax revenue.

lomiller

10th September 2010, 07:13 AM

Government programs are a zero-sum game. Government doesn't spend any money, anywhere, without taking at least that much money from the taxpayers.

In which case the money moves in the economy, which is exactly what you want in a recession. The movement of money is absolutely not a zero sum game, in fact it’s self re-enforcing the more money moves the stronger the incentive for more of it to moves.

Money is spent on activities that turn raw materials and labor into goods and services that are worth more than the cost of producing them.

Your belief that government doesn’t produce goods/services is completely wrong. It’s far more focused on services obviously but there are cases where it produces goods as well.

I can grantee you the cost of producing new money is always less then the cost of producing new goods/service regardless of whether it’s government of the private sector producing those goods/services. In fact if there is ever a shortage on in the economy it’s blatant mismanagement.

left the economy poorer by the value of that car in addition to the value of the labor and resources used to destroy it.

If you destroy 1 car and hire 1 otherwise unemployed person to build a new one it seems to me you have a more valuable car then you would have had otherwise, which is clearly a net increase in total wealth.

TraneWreck

10th September 2010, 07:21 AM

Government programs are a zero-sum game. Government doesn't spend any money, anywhere, without taking at least that much money from the taxpayers.

And private business doesn't spend any money, anywhere, without taking it from someone else's pocket.

This is so silly. If a government uses tax money to build a new road that opens up an area for commercial development, they've created economic opportunity.

If the government spends money on an Navy that guards shipping lanes allowing countries to freely trade, they've generated wealth.

Please read from sources other than Glenn Beck's university.

drkitten

10th September 2010, 07:24 AM

I won't be buying any new equipment or making other investments in the business unless they are actually needed, it would be foolish to do so just for the tax consequences.

Of course. But lots of things that are needed aren't cost-effective, and tax policy can change that. While you would be foolish to do something just for the tax consequences, you'd be equally foolish to ignore tax consequences when you made a decision.

For example, suppose you have an aging and inefficient widget. A new one will cost you $50,000 but save you $5,000/year forever. Do you buy it?

Simple math says it will take ten years to pay for itself; most companies won't invest in new equipment with that long a payback period.

But when your accountant points out that buying the widget will save you $40,000 in taxes (because it reduces your taxable income) this means the net cost to you is only $10,000 and the payback period is only two years. This makes the equipment much more attractive to buy.

You can do the same calculations with whatever semi-realistic numbers you like to see how different prices, tax rates, and savings interact. The end result is that saving tax money will make (some) marginally unprofitable investments into marginally profitable ones.

You can do the same calculations for people, too. A new widget-operator will generate $35,000 in revenues per year but cost $40,000. So you don't hire him. But if the tax consequences reduce his cost to you by $7,000, then he's actually a net generator of revenue for the firm and you should hire him.

drkitten

10th September 2010, 07:28 AM

Amazing!

You're telling us that the “Cash for Clunkers” scam did not destroy wealth, and then accusing me of “deliberate and willful falsehood”?

I am. And you've just supported my accusation by retelling the lie.

Every car that was destroyed under this fraudulent, outrageous scam, left the economy poorer by the value of that car in addition to the value of the labor and resources used to destroy it.

And left the economy richer by the value of the new car that replaced it

Only through “deliberate and willful falsehood” could you or anyone else ignore the second half of the equation.

drkitten

10th September 2010, 07:31 AM

And private business doesn't spend any money, anywhere, without taking it from someone else's pocket.

This is so silly.

Of course it is. It's the YEC of economics. The only way to make this position make any sort of sense is to tell transparent lies.

Please read from sources other than Glenn Beck's university.

It's not a question of where he reads. It's a question of what lies he chooses to tell after he's done the reading. You can correct Kent Hovind on his "mistakes" in biology as many times as you like. He'll tell the same tired falsehoods to the next audience, because what's important to him is not the truth of this snake oil claims, but just that the snake oil get sold.

joobz

10th September 2010, 07:34 AM

I am. And you've just supported my accusation by retelling the lie.

And left the economy richer by the value of the new car that replaced it

Only through “deliberate and willful falsehood” could you or anyone else ignore the second half of the equation.

Of course, I am sure Bob will be stating that the money that went to purchase the new car could have been used elsewhere. This of course, is only the case if people were using the money elsewhere to begin with.
And let's add to the equation the savings people have in gas (trade in cars had an average 16mpg, replacement cars had a 25mpg). This additional cash can be used elsewhere in the economy as well.

drkitten

10th September 2010, 07:39 AM

Consumers are doing exactly what they need to do, pay down debt so that we can start all over with our boom and bust economy again. Gov programs that add to our debt which encourage spending are only decreasing the peak of the next cycle and/or prolonging the recovery.

Most of us would agree that "decreasing the peak of the next cycle" is generally a good thing. Since "the peak of the next cycle" is generally a bubble, and people get seriously hurt when bubbles burst --- that's exactly the problem we're dealing with now, in fact --- the basic idea behind Keynesian economics is that government fiscal policy can be used as a brake on the economy, reducing the "irrational exuberance" during bubbles and cushioning the troughs.

If consumer spending accounts for 66% of the GDP, and a healthy chunk (http://articles.latimes.com/2010/may/16/business/la-fi-consumer-spending-20100516) of that comes from the Rich; can you see my hypothetical now?

And, again, this argues for an increase in income tax, because that will encourage spending, which is what the economy needs, instead of saving, which is what we're getting (due to the paradox of thrift).

Nobody knows what will happen if taxes are increased.

That's funny. A few posts ago Mike was telling me exactly what would happen if taxes were increased. A few sentences ago you personally were telling me that "they aren't going to stay in business, expand, or provide pay increases, etc if it's not profitable." But when I point out that increased marginal tax rates make it more profitable for sole proprietorships to expand and provide pay increases (and less profitable to sit on cash), all of a sudden it's oh-so-uncertain whether or not companies will take the more profitable route?

drkitten

10th September 2010, 07:40 AM

Of course, I am sure Bob will be stating that the money that went to purchase the new car could have been used elsewhere.

Yes. That's because it's easy to tell lies.

This of course, is only the case if people were using the money elsewhere to begin with.

Which was demonstrably not the case, hence the need for the stimulus in the first place.

And let's add to the equation the savings people have in gas (trade in cars had an average 16mpg, replacement cars had a 25mpg). This additional cash can be used elsewhere in the economy as well.

Yes, but you're only saying that because you have this infantile and leftist infatuation with being correct and truthful.

Bob Blaylock

10th September 2010, 12:53 PM

If you destroy 1 car and hire 1 otherwise unemployed person to build a new one it seems to me you have a more valuable car then you would have had otherwise, which is clearly a net increase in total wealth.

That's the Broken Window Fallacy (http://en.wikipedia.org/wiki/Parable_of_the_broken_window), exactly.

Bob Blaylock

10th September 2010, 12:55 PM

And private business doesn't spend any money, anywhere, without taking it from someone else's pocket.

Private business doesn't take money from other people's pockets, as government does. Private business only gets money by giving something of greater value in return for it, to someone who willingly exchanges his own money for that more valuable product.

drkitten

10th September 2010, 08:07 PM

That's the Broken Window Fallacy (http://en.wikipedia.org/wiki/Parable_of_the_broken_window), exactly.

No, it's not. You don't understand what the broken window fallacy is.

From your own source:

The fallacy of the onlookers' argument is that they considered only the benefits of purchasing a new window, but they ignored the cost to the shopkeeper.

If you replace a window with a new, better, and more valuable window, you're indeed richer. You're richer by the difference in value between the old one and the new one.

The broken window fallacy is ignoring the value of the old window you had to get rid of. It's an easy and common mistake to make, which is why people teach it.

You're making the opposite mistake, in ignoring the value of the new window. That's a much harder mistake to make, which is why I feel confident that the ignorance is feigned and that you're actually telling a lie.

NoZed Avenger

10th September 2010, 08:52 PM

If you replace a window with a new, better, and more valuable window, you're indeed richer. You're richer by the difference in value between the old one and the new one.

The broken window fallacy is ignoring the value of the old window you had to get rid of. It's an easy and common mistake to make, which is why people teach it.

You're making the opposite mistake, in ignoring the value of the new window. That's a much harder mistake to make, which is why I feel confident that the ignorance is feigned and that you're actually telling a lie.

But the old cars were destroyed. They had to be, under the law. It certainly seems analogous -- the difference being the cars were paid for, then destroyed. So whle I think you can draw a legitimate distinction, I think you're going far overboard in your accusations of dishonesty. It would be better to point out the flaw as you see it, rather than dismiss it, because I am betting the people using the analogy are being quite honest about it.

Skeptic

10th September 2010, 09:53 PM

The reason that raising taxes on 'the rich' is a bad idea is that increasing marginal tax rates (http://www.econlib.org/library/Enc/MarginalTaxRates.html) reduces economic growth.

There is a moral issue as well: whose tax money is it? For some, taxation is a matter of necessity: therefore taxes should be as low as possible, preferably (say the libertarians) 0%. For others, it's a matter of social justice: the rich are unfairly exploiting the poor and therefore taxes should be as high as possible, preferably (say the communists) 100%.

The big difference between the stimulus and lowering taxes for the rich -- or for anybody -- is that in one case the government takes more tax money and spends it as it wishes, and in the other it takes less tax money and let people spend it as they wish.

Perhaps both don't work as advertised. Indeed I'm sure they don't. But I rather have a government which, in an economic crisis, wishes to tax and spend less, not one whose first instinct is to spend $800,000,000,000 of tax money @ $250,000 per job created in order to "save the economy".

Because, remember, it isn't "the government" which is spending this money. It's the taxpayer.

Bob Blaylock

11th September 2010, 12:53 AM

No, it's not. You don't understand what the broken window fallacy is.

From your own source:
The fallacy of the onlookers' argument is that they considered only the benefits of purchasing a new window, but they ignored the cost to the shopkeeper.

If you replace a window with a new, better, and more valuable window, you're indeed richer. You're richer by the difference in value between the old one and the new one.

Minus what you had to pay for the new window. You're leaving that part out, and that makes all the difference. You still had to pay to replace the window. That you decided to spend more money that you needed to for an exact replacement, in order to buy an even better window, makes no difference. You're still out the cost of a window. That's money that, had you not had to spend it to replace the window, you could have spent to put food on your table, or fuel in your car, or spent it in any number of ways that you now cannot, because you had to spend it to replace a broken window.

Bob Blaylock

11th September 2010, 01:01 AM

But the old cars were destroyed. They had to be, under the law. It certainly seems analogous -- the difference being the cars were paid for, then destroyed.

…out of taxpayer money. Three billion dollars was spent to buy up valuable assets, just to destroy these assets. Three billion dollars of my money, and your money, and every other American's money, outrageously squandered, in a massive, fraudulent wealth-destroying scam. In private industry, such conduct would be criminal. People would be fired, and many of them prosecuted for fraud and embezzlement for pulling a scam such as this.

Unfortunately, those who pulled off this scam will probably never be held accountable for it, or for the damage that they caused with it. At least we have a chance to fire a great many of them in a few months from now.

oggiesnr

11th September 2010, 02:30 AM

It is possible that neither tax cuts or stimulus will work in the current situation. The problem is lack of activity not lack of money in the economy.

In the UK it looks as if most of the Fiscal Stimulus money was parked by banks either to strengthen their balance sheets or in paper assets (shares and bonds) it is not circulating through the economy.

Likewise many companies and individuals are paying down debt not taking on more. As savings rates go up there is less cash circulating, people are drawing in and that is the big danger.

It's almost as if the money is circulating on a very short cycle and at the point it reaches the banks it is stopping.

Steve

drkitten

11th September 2010, 06:14 AM

But the old cars were destroyed. They had to be, under the law. It certainly seems analogous -- the difference being the cars were paid for, then destroyed. So whle I think you can draw a legitimate distinction, I think you're going far overboard in your accusations of dishonesty. It would be better to point out the flaw as you see it, rather than dismiss it, because I am betting the people using the analogy are being quite honest about it.

And the first twenty-five times Bob and the rest of the YEC's made this argument, I did simply point out the flaw.

Pointing the flaw in his argument to Kent Hovind is one of the reasons I know he's lying. He repeats the same argument at the next opportunity without changing a syllable.

And that's also one of the reasons I know that Bob is being actively dishonest. Because, like "Dr." Hovind, he knowingly repeats the same discredited canards despite having had the flaws pointed out to him directly.

lomiller

11th September 2010, 06:49 AM

Minus what you had to pay for the new window. You're leaving that part out, and that makes all the difference. You still had to pay to replace the window.

Again, form your own wiki link

Bastiat is not addressing production – he is addressing the stock of wealth. In other words, Bastiat does not merely look at the immediate but at the longer effects of breaking the window.

The broken window parable is attempting to show that you need to look at all the effects not just cherry pick the ones that suit a predetermined position. You are out the money needed to repair the window, but someone else has gained that money and may now spend it, and that merchant may spend it as well, and so on. The point of the fallacy is that you need to consider these positive effects as well.

Of course you need to consider the effects of you spending the money on something else, but the whole point of the paradox of thrift was that during a recession people don’t spend the money at all.

When all is said and done, if people who were not working and get jobs producing replacements for older cars which are then destroyed there is a clear increase in the total stock of wealth. If there wasn’t a recession going on the result may (most certainly would) be different, but that just gets back to the point of the broken window parable demonstrating the fact you need to look at all the effects.

joobz

11th September 2010, 07:38 AM

Bob Blaylock

11th September 2010, 12:57 PM

Of course you need to consider the effects of you spending the money on something else, but the whole point of the paradox of thrift was that during a recession people don’t spend the money at all.

…which turns your argument into one that if government doesn't think the people are spending their money as it thinks they should, as freely as they think it should, then government is justified in taking their money away from them and spending it as it thinks it should be spent.

See the the last phrase in the Fifth Amendment.

Bob Blaylock

11th September 2010, 01:02 PM

And the first twenty-five times Bob and the rest of the YEC's made this argument, I did simply point out the flaw. ·
·
·And that's also one of the reasons I know that Bob is being actively dishonest. Because, like "Dr." Hovind, he knowingly repeats the same discredited canards despite having had the flaws pointed out to him directly.

Again, you are certainly in no position to be casting any aspersions on my honesty or alleged lack thereof. The “Cash for Cluckers” scam destroyed wealth. Destroying wealth is bad for the economy. Period. You know this, I know this, everyone with any vestige of sense knows this. If you claim otherwise, then it is you who is flat-out lying.

Corsair 115

11th September 2010, 01:12 PM

Destroying wealth is bad for the economy.

That's true, as far as it goes. But what was the wealth of the new cars purchased? Lower or higher than the destroyed cars? What is the typical rate of depreciation of a car? It's rather high, isn't it? That is, it loses its (assessed) value rather quickly.

And even with the cars destroyed, the scrap left over still has some value. Just not as much as when the scrap was still assembled into a functioning automobile.

TraneWreck

11th September 2010, 01:14 PM

Here's a fascinating graph showing what the "austere" Germans did to help their economy recover from the fiscal crisis compared to our "run away" government spending:

http://krugman.blogs.nytimes.com/2010/09/10/ever-expanding-government/

Yes, the Germans stimulated their economy more than we did, and their economy has recovered better than ours. SHOCKING.

A side note, this should make everyone more upset at Germany for forcing austerity measures on Greece.

drkitten

11th September 2010, 03:32 PM

Again, you are certainly in no position to be casting any aspersions on my honesty or alleged lack thereof.

Sure I am.

I pointed out that you were incorrect. I presented evidence that CFC did not destroy wealth (most notably in the relevant economic statistics). On this thread alone, I pointed out that you're misusing the "broken window fallacy."

I stand by my writing.

And furthermore,

If you claim otherwise, then it is you who is flat-out lying.

Unsupported accusations of lying are hardly a defense to a someone pointing out your own lies.

Bob Blaylock

11th September 2010, 03:51 PM

Sure I am.

I pointed out that you were incorrect. I presented evidence that CFC did not destroy wealth…

So all the automobiles that were collected under this program, are actually still out there, being used to transport people and objects, are they?

Bob Blaylock

11th September 2010, 03:53 PM

Unsupported accusations of lying are hardly a defense to a someone pointing out your own lies.

Pot, kettle, black.

Puppycow

11th September 2010, 05:33 PM

ABC News recently did a segment they called "Fact Checking" on this which consisted largely of asking CEOs how much money this would cost them and then how many people they'd have to fire as a result. One CEO said he'd "have to" fire about 2 to 4 employees if the Bush tax cuts weren't extended. But this makes no sense if you understand how businesses work. People are either worth hiring because they produce at least as much value as the cost of employing them is, or they are not. The marginal tax rate on the CEO's earnings over $250,000 doesn't affect this.

Here is that segment (http://abcnews.go.com/WNT/video/fact-checking-tax-cut-debate-rich-wealthy-extend-small-business-concerns-unemployment-11588336).

Another propaganda win for republicans.

lomiller

11th September 2010, 08:02 PM

…which turns your argument into one that if government doesn't think the people are spending their money as it thinks they should, as freely as they think it should, then government is justified in taking their money away from them and spending it as it thinks it should be spent.

The government taxes to pay for things that are needed by everyone but not e adequately funded otherwise. that's it's job. It takes money people would have spent on something else and spends it on things like roads, military, education, and yes even a better economy...

The Charnel Expanse

11th September 2010, 09:13 PM

mhaze

12th September 2010, 10:47 AM

http://www.truthfulpolitics.com/images/top_marginal_personal_income_tax_rate.gif
http://i56.tinypic.com/ipy5p4.png
http://upload.wikimedia.org/wikipedia/commons/thumb/c/c3/Us_unemployment_rates_1950_2005.png/800px-Us_unemployment_rates_1950_2005.png

Doesn't look to me like there's any correlation one way or the other between unemployment, GDP growth and the top marginal tax rate.

Probably because you've presented a conclusion based on false premises.

The top marginal tax rate is a red herring of a concept. Reason, it coexisted with numerous allowed tax dodges and shelters. These were all cut out, along with most of the average-guy's deductions on Sch A and B. Seriously.

So what you have to actually use to base the argument on is ACTUAL PAID tax percentages.

Malerin

12th September 2010, 05:47 PM

…out of taxpayer money. Three billion dollars was spent to buy up valuable assets, just to destroy these assets. Three billion dollars of my money, and your money, and every other American's money, outrageously squandered, in a massive, fraudulent wealth-destroying scam. In private industry, such conduct would be criminal. People would be fired, and many of them prosecuted for fraud and embezzlement for pulling a scam such as this.

Unfortunately, those who pulled off this scam will probably never be held accountable for it, or for the damage that they caused with it. At least we have a chance to fire a great many of them in a few months from now.

What if the destrcution of those cars results in a net savings?

KoihimeNakamura

12th September 2010, 09:06 PM

Considering the government has the duty to protect the general welfare, one COULD easily argue it has the right to prevent selfdestructive behavior.

er, wealthdestruction? Whatever. Most people got more wealth out of it, the only people hurt are people like me trying to buy a used car now and finding it totally destroyed the cheap used car market. [Like my budget is 3k in the seattle area I may have to go up to 7k, and as that's half my yearly income I'm REALLY not comfortable doing that.]

ETA2: If I don't buy off Craglist/ Little Nickel but uh.. used cars are kinda tricky that way..

Almo

12th September 2010, 11:35 PM

Basically -- and I've said this before -- opposition to the stimulus is the Young Earth Creationism of economics. The only way to make the case for this is to tell transparent lies that blatantly contradict the real world. In the case of post #19, some of the lies include : "spending is a zero-sum game," "the stimulus is an example of the broken window fallacy," and "Cash for Clunkers destroyed wealth." Other threads have already dealt extensively with these -- suffice it for now to say that there is not an ounce of truth in any of these, and the only way that Bob (or anyone else) could make those statements is by deliberate and willful falsehood.

Nice post DrK.

I have bolded what is annoying the hell out of me recently. My perspective is that the US democracy is on the road to failing because of the sheer number of people telling outright lies about how things work, and having voters believe them because they won't do any research to determine what is really true.

The widespread belief in "death panels" is one good example:

http://theplumline.whorunsgov.com/political-media/poll-nearly-half-of-americans-believe-death-panel-falsehood/

This article has a reference to the original poll, and shows the original wording of the question. The use of the term "death panels" may be inflammatory, but it seems to be true that "government empowerment to deprive the elderly of health care" fits the bill and is not part of the health care reform that has happened.

The opponents of the healthcare bill harped on and on about the death panels. It appears their lies worked, and that upsets me.

Side note: I'm not trying to pin this on either major party, as I'm aware both are guilty of this at one time or another.

Emperor_Gestahl

13th September 2010, 07:15 PM

You can tax the rich more in a recession, in theory. It's just that in a recession the amount of people qualifying as rich tends to decrease, and the still-rich can't be expected to make it easy to do.

Sounds like class warfare, but class warfare will always be reality whether it's acknowledged openly or not. The rich and the poor simply have conflicting interests, that doesn't and probably cannot change.

uruk

14th September 2010, 06:48 AM

Amazing!

You're telling us that the “Cash for Clunkers” scam did not destroy wealth, and then accusing me of “deliberate and willful falsehood”?

Destroying wealth is exactly what the “Cash for Clunkers” scam did. That was its purpose, its intent, and its effect. Every car that was destroyed under this fraudulent, outrageous scam, left the economy poorer by the value of that car in addition to the value of the labor and resources used to destroy it.

Only through “deliberate and willful falsehood” could you or anyone else possibly claim that it did otherwise.

I don't know about you but I got crap for my old car when I traded it in. Very little value to me.

The value of the car that got destroyed is more than offset by the value of the base materials that got recycled. Not to mention the wage of the person who destroyed the car generated tax revenue and sales for businesses as that person had to spend his wage.

Where was the wealth destroyed? It just got redistributed which seems to be a bad word these days. The rich don't seem to mind the wealth getting redistributed toward themselves.

I am a big proponent of tax cuts for the middle class. The more money in the hands of the middle class means the more money that will be deposited in banks for invenstment and money spent, thus circulating, in the economy.

Rich people tend to "sit" on money in tax shelters or off shore bank accounts where the money gets taken out of the U.S. economy.

uruk

14th September 2010, 07:04 AM

Private business doesn't take money from other people's pockets, as government does. Private business only gets money by giving something of greater value in return for it, to someone who willingly exchanges his own money for that more valuable product.

Then what is the deal with depreciation? If you purchase a durable good it's value decreases imediately after purchase. Try to sell a car that you just bought for $30,000. to someone else for that same amount. You ain't gonna get it.

Your car devalues or depreciates by at least 10% (I could be wrong about the exaxct amount) immediately after you sign the contract.

So tell me, did the car retailer give me something of greater value when I purchased the Car? Maybe of some sort of intrinsic value such as now I can drive to work rather than taking public transportation. But then that is off set by the amount I have to pay for gas and maintnenance and licenses. Not to mention the monthy payments and interests charges.

Tippit

14th September 2010, 08:01 AM

And private business doesn't spend any money, anywhere, without taking it from someone else's pocket.

No, most private transactions are voluntary, only the government takes. This means value received for value spent, typically. Even if the consumer is limited in terms of choices for a given good or service, they still typically have viable choices. Private businesses are ultimately accountable by the fact that if they don't deliver the goods, you don't have to do business with them anymore. If you elect not to do business with an unaccountable government, you end up with a lien on your assets and/or in jail.

This is so silly. If a government uses tax money to build a new road that opens up an area for commercial development, they've created economic opportunity.

Only if there was real, pre-existing demand for such a road by the taxpayers. If instead politicians are getting kickbacks from developers to build roads (or bridges) to nowhere, then it hurts all of the productive endeavours that our tax dollars would have been spent on had the money not been taken in the first place. Unfortunately, this is more likely the norm than the occasional accident when government spending actually benefits us.

If the government spends money on an Navy that guards shipping lanes allowing countries to freely trade, they've generated wealth.

Really? At some point, a point which we've long ago passed, there are diminishing returns on the security provided by military spending. Exactly how many aircraft carriers per square mile do you think we need in order to conduct safe commerce? After that, the spending represented by the military becomes an onerous burden. Ever heard of guns versus butter? When you consider that military budgets are often dictated by the same generals who benefit directly from said budgets, it's no surprise that there are threats everywhere. The system resembles a mafia protection racket on a national scale.

Please read from sources other than Glenn Beck's university.

It is possible to hold Glen Beck in utter contempt, and still be opposed to government spending and waste, isn't it?

Tippit

14th September 2010, 08:32 AM

You're making the opposite mistake, in ignoring the value of the new window. That's a much harder mistake to make, which is why I feel confident that the ignorance is feigned and that you're actually telling a lie.

And you're ignoring what's most important of all, which is the ability to buy things other than windows. Broken windows typically necessitate replacing, which means less discretionary spending. I dont much care whether a new window is marginally better than an old one, because I'd rather spend the money on a new computer, or almost anything else.

You would have to force someone else to pay the difference between a new and old window, in order to make simple replacement cost-neutral, which is exactly what the government is all about - force.

The tragedy of the cash-for-clunkers scam, is that all of the time and resources spent producing the new cars could have been spent producing something else, and no even remotely reasonable environmental externalized-savings model will change this.

NewtonTrino

14th September 2010, 08:37 AM

Ivor the Engineer

14th September 2010, 08:44 AM

<snip>

The tragedy of the cash-for-clunkers scam, is that all of the time and resources spent producing the new cars could have been spent producing something else, and no even remotely reasonable environmental externalized-savings model will change this.

Examples?

pgwenthold

14th September 2010, 11:35 AM

Rich people tend to "sit" on money in tax shelters or off shore bank accounts where the money gets taken out of the U.S. economy.

If I have $19K sitting in a savings account accruing little interest, will $300 in tax cuts make a difference to me?

If I need to buy something that costs $300, it doesn't matter whether I have $19000 in the bank or $19300. If I have $19000 in the bank and someone sends me a check for $300, it doesn't motivate me to spend any more.

However, if my checking account is running on pins and needles already, I don't have a savings account, and I am putting off buying something, then that $300 makes a HUGE difference, and I can make great use of it.

You don't need to be rich with money in tax shelters to not utilize a tax cut.

Cobalt

14th September 2010, 11:56 AM

If I have $19K sitting in a savings account accruing little interest, will $300 in tax cuts make a difference to me?

If I need to buy something that costs $300, it doesn't matter whether I have $19000 in the bank or $19300. If I have $19000 in the bank and someone sends me a check for $300, it doesn't motivate me to spend any more.

However, if my checking account is running on pins and needles already, I don't have a savings account, and I am putting off buying something, then that $300 makes a HUGE difference, and I can make great use of it.

You don't need to be rich with money in tax shelters to not utilize a tax cut.

How is being given a check a "tax cut?"

pgwenthold

14th September 2010, 12:19 PM

How is being given a check a "tax cut?"

If it comes as a return of taxes already paid after a retroactive tax cut, then that's what it is.

In fact, that's what Bush's approach was - to make tax cuts retroactive so they could make a big show out of sending everyone a check for $300, making them feel like they had free money in their pocket.

Bob Blaylock

14th September 2010, 12:40 PM

er, wealthdestruction? Whatever. Most people got more wealth out of it [the “Cash for Clunkers” scam], the only people hurt are people like me trying to buy a used car now and finding it totally destroyed the cheap used car market.

No. The only people who benefitted were those in a position to directly profit from the increased sale of automobiles, and those in a position to take advantage of the program in a manner to get more than the value of their used car in exchange for buying a new automobile.

Everyone else experienced a net loss, in having to pay the taxes to support this scam. And as you said, those in the market for a used car got doubly screwed-over, in that the supply of used cars was diminished, and the cost thereof increased.

This scam benefitted a minority of the population, at the expense of the majority. A lion's share of the benefits went to foreign car manufacturers, such as Toyota and Hyundai, so it didn't even stay in the American economy.

drkitten

14th September 2010, 12:49 PM

No. The only people whop benefitted were those in a position to directly profit from the increased sale of automobiles, and those in a position to take advantage of the program in a manner to get more than the value of their used car in exchange for buying a new automobile.

Another transparent econ 101 lie.

Money circulates. The other people who benefited were those in a position to indirectly profit from the increased sales of automobiles. For example, the increased sales of automobiles directly helped the salesmen at the auto dealerships, who made more money. Because they made more money, they were able to afford to buy PS3 games for their children and new back-to-school clothes; this helped games retailers and manufacturers as well as clothing manufacturers. The clothing manufacturers were then able to go out and buy flowers for their wives anniversaries, which helped the florists and flower growers.

And so it goes. A ripple spreads to all corners of the pond. That's the whole point of an economic stimulus.

And you can see that effect by looking at the quarterly GDP for the USA over the relevant period (http://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm); GDP shot up dramatically during Q3 of 2009, but has stayed positive every quarter since then (in dramatic contrast with "the longest recession since the 1930s," where we experienced negative quarter-over-quarter growth for a year.)

Everyone else experienced a net loss, in having to pay the taxes to support this scam.

Nope. A net gain. Another transparent lie.

drkitten

14th September 2010, 12:51 PM

A lion's share of the benefits went to foreign car manufacturers, such as Toyota and Hyundai, so it didn't even stay in the American economy.

And a third transparent lie. Where do you think Toyotas and Hondas are manufactured (http://www.honda.com/newsandviews/article.aspx?id=200704023919)?

(Hint: Marysville, Ohio is part of the American economy.)

Dr. Keith

14th September 2010, 01:12 PM

Businesses that aren't profitable still pay a lot of tax, just not federal income tax. For example in this state they take 1.5% off the top before any expenses. In addition there is payroll tax etc.

I think it's pretty hard to make an argument that raising personal income taxes harms small business directly. I don't see it as an incentive thing because as drkitten says if you are going to pay more tax you might as well invest the money in the business which could promote growth. The real issue here is freeing up money for consumers to spend so that all businesses can grow. To do that we really just need economic growth. Stimulus type packages that are targeted towards things we need like new bridges make sense to me.

Maybe you didn't get the memo, I think I left a copy on your desk, there, by your swingline, yeah that one.

See, as successful small/medium business owners we are suppose to be against any taxes and not point out that some taxes will actually encourage us to invest. So, I know its hard to swallow you dignity, but you need to stick to the script, that's why we printed out the memo, you did get the memo, right?

Thanks.

Dr. Keith

14th September 2010, 01:20 PM

If consumer spending accounts for 66% of the GDP, and a healthy chunk (http://articles.latimes.com/2010/may/16/business/la-fi-consumer-spending-20100516) of that comes from the Rich; can you see my hypothetical now?

While we were talking about the direct effects of changing the marginal income tax rate on individuals, we can talk about this instead. The simple fact is that rich people are not reliable as spenders, your article is pretty clear about that. Poor people are very reliable. If I gave my babysitter a 100% raise I still doubt she would have ten dollars at the end of the week. She is poor and will spend every dime she has. The rich are not as reliable, read you link.

It's not about the CFOs' personal life decisions, it's about what recommendations the CFO will make to investors/owners about future revenue projections. It's about the markets reaction to a proposed tax increase. We're living in a psychological thriller right now. Nobody knows what will happen if taxes are increased. It's less problematic to avoid this move right now. I don't drink and drive, and we shouldn't raise taxes at this moment.

Actually we do know: the rich will save slightly less money. It is really that simple.

And you misread my sentence about the CFO, but we'll let is slide for now.

A Christian Sceptic

14th September 2010, 03:07 PM

The problem with this view is that there wasn't spending to begin with. Hence the recession. So, the idea that money would have been put to "Better use" is simply flawed.

I think more accurately - the money would have been used for the owner of the money's preferred use. That preferred use can be many different things - a gadget or a widget, or just a future down payment on a house (or savings), or put all on red in Vegas.

But instead of letting the owners of the money decide - certain people are claiming they know better on how to spend the other peoples money - that they should only be spending it on a gadget.

Of course - the vast majority is my children's and grandchildren's money being spent now (or rather money borrowed now that will be paid back by them).

A Christian Sceptic

14th September 2010, 03:16 PM

Yeah. And that's an econ 101 mistake. As in, if you passed econ 101, you don't make that mistake. If I have peanut butter but no jelly, and you have jelly but no peanut butter, we're both better off if we can make a trade, and we're better off still if the governmetn subsidizes a baker so we can make it a three-way. The value of goods is not fixed, not intrinsic, and depends on each individual person's needs.

The government has to subsidize the baker at the expense of someone else. There is no free peanut butter and jelly sandwhich.

So the idea of moving money by taxing enterprises and using it to purchase public goods is a better/cheaper/more effective way of increasing the supply public goods than allowing participants in the free market to (not) invest in them. Hence using public stimulus to invest in infrastructure makes a lot of sense.

Except the stimulus was not solely limited to infrastructure or "public goods".

"Cash for Clunkers destroyed wealth." Other threads have already dealt extensively with these -- suffice it for now to say that there is not an ounce of truth in any of these, and the only way that Bob (or anyone else) could make those statements is by deliberate and willful falsehood.

I'd like to see the thread on the Cash-For-Clunkers to learn how having me and other tax payers pay the down payment for new cars for other people and thus nudge them into buying a new car instead of maybe the old car they were going to buy instead (or any of the other items they were going to buy instead of the new car) and then demolishing the cars traded in didn't destroy wealth somewhere along the line.

A Christian Sceptic

14th September 2010, 03:22 PM

A Christian Sceptic

14th September 2010, 03:31 PM

The government taxes to pay for things that are needed by everyone but not e adequately funded otherwise. that's it's job. It takes money people would have spent on something else and spends it on things like roads, military, education, and yes even a better economy...

And grants for studies on genital washing in Africa.

Just saying ...

A Christian Sceptic

14th September 2010, 03:34 PM

What if the destrcution of those cars results in a net savings?

How many people paid for their cash for clunkers car with cash?

A Christian Sceptic

14th September 2010, 03:41 PM

And you're ignoring what's most important of all, which is the ability to buy things other than windows. Broken windows typically necessitate replacing, which means less discretionary spending. I dont much care whether a new window is marginally better than an old one, because I'd rather spend the money on a new computer, or almost anything else.

Maybe the government should pay the unemployed to go around breaking all the windows of all the employed people so they can stimulate the window industry. And if people don't buy new windows and for some subborn reason decide to not replace the hole in their house the window-breakers should then maybe move up according to some sort of ladder system - maybe steal and total their car or heck, maybe even burn down their house.

I also think that maybe the government should temporarily make counterfeiting legal - but only for the unemployed, of course.

Corsair 115

14th September 2010, 04:36 PM

Yeah - but destroying these cars stopped the pollution. :rolleyes:

Should one take the above to mean that there are no negative enconomic effects caused by pollution?

A Christian Sceptic

14th September 2010, 05:42 PM

Should one take the above to mean that there are no negative enconomic effects caused by pollution?

Nope. It was however one of the main arguments for why they were doing Cash For Clunkers. :rolleyes:

drkitten

14th September 2010, 06:03 PM

The government has to subsidize the baker at the expense of someone else. There is no free peanut butter and jelly sandwhich.

Econ 101 says you're wrong. Look up "comparative advantage." The baker can bake bread more cheaply than either you or I can, which means that we can buy his bread (at a profit to him) more cheaply than we can bake it ourselves. We can even pay the tax necessary to let him start up his business, knowing that he'll be paying that back out of the taxes he pays from HIS business.

or in other words, "economics is not zero sum."

I'd like to see the thread on the Cash-For-Clunkers to learn how having me and other tax payers pay the down payment for new cars for other people and thus nudge them into buying a new car instead of maybe the old car they were going to buy instead (or any of the other items they were going to buy instead of the new car) and then demolishing the cars traded in didn't destroy wealth somewhere along the line.

Well, you know where the search function is. Or you could google "creative destruction."

A Christian Sceptic

14th September 2010, 06:17 PM

Econ 101 says you're wrong. Look up "comparative advantage." The baker can bake bread more cheaply than either you or I can, which means that we can buy his bread (at a profit to him) more cheaply than we can bake it ourselves. We can even pay the tax necessary to let him start up his business, knowing that he'll be paying that back out of the taxes he pays from HIS business.

Tell that to Peter who did not want the bread, jelly or the peanut butter and who now can not buy the bread, jelly or peanut but instead wanted a pizza. He can't buy the pizza now because he's just subsidized the baker.

The Baker, the Jelly guy and the Peanut butter guy are as happy as pickles because at the expense of Peter (and the Pizza man) they've all profitted.

drkitten

14th September 2010, 06:35 PM

Tell that to Peter who did not want the bread, jelly or the peanut butter and who now can not buy the bread, jelly or peanut but instead wanted a pizza. He can't buy the pizza now because he's just subsidized the baker.

Actually, he probably can. The baker, the jelly guy, and the peanut butter guy all have more disposable income as a result of this operation, and they'll spend more money on pizza.

The Pizza guy now has four customers instead of one, and can start supplying pizzas more cheaply due to volume discounts on his materials. So the effect of this stimulus is that Peter has cheaper pizza as well.

Or, more simply, "economics is not zero-sum."

ServiceSoon

14th September 2010, 08:22 PM

While we were talking about the direct effects of changing the marginal income tax rate on individuals, we can talk about this instead. The simple fact is that rich people are not reliable as spenders, your article is pretty clear about that. Poor people are very reliable. If I gave my babysitter a 100% raise I still doubt she would have ten dollars at the end of the week. She is poor and will spend every dime she has. The rich are not as reliable, read you link.
Are you trying to confuse me this early in the conversation? Shame on you :p My link is about which social class accounts for the largest amount of consumer spending. The rich are individuals. You know that anecdotal observations aren't allowed. I think the middle class is more keen on saving and reducing debt. Meanwhile the rich have money to spend.

Actually we do know: the rich will save slightly less money. It is really that simple.
Except the article says "In recent months, the wealthiest Americans apparently have been driving an even more disproportionate share of consumption. According to estimates from Economy.com, they've also contributed an outsized share of the corresponding decline in saving, which has worried some analysts and policymakers. "

I'm just saying that you speak with such a high level of certainty that isn't possible. A tax increase for any social class should be off the table at this time.

Even if your statement was true, you have to remember that there are a lot of people in our economy that wouldn't agree with you, and they will hamper the recover if you take the steps you want to take. It's going to take a positive effort by more than 50% of the population to make this recover happen.

And you misread my sentence about the CFO, but we'll let is slide for now.The tax decision that's made now will shape the decision the CFO's (wink) make in the coming months. Do you really think that the owner of a company is going to give the workers a raise when s/he taxes have been increased?

I actually think you miss-typed your sentence, but I'll let it slide for now :)

ServiceSoon

14th September 2010, 08:29 PM

Maybe the government should pay the unemployed to go around breaking all the windows of all the employed people so they can stimulate the window industry. And if people don't buy new windows and for some subborn reason decide to not replace the hole in their house the window-breakers should then maybe move up according to some sort of ladder system - maybe steal and total their car or heck, maybe even burn down their house.

I also think that maybe the government should temporarily make counterfeiting legal - but only for the unemployed, of course.You forgot to add that the government should make a rule that if the windows aren't fixed in a certain amount of time then fines will be levied. It's only fair because my lack of windows affects my neighbors property value. It also decreases the efficiency of my hvac, thereby increasing global warming. Besides, the revenue generated form such a program could be spent researching the migrating habits of John Jacob's spirit. Those hired workers will spend their money on cable TV so they can watch Ghost Hunters, etc, etc, etc.

Emperor_Gestahl

14th September 2010, 09:57 PM

Or, more simply, "economics is not zero-sum."

No it's not but being above zero-sum overall doesn't necessarily mean it will be like that for most of the population. If I make 100 dollars and 99 people lose 1 dollar that's a net positive but wow am I a dick.

(Edit: I mean that wouldn't seem good to damn near anyone, yet mathematically it's "good for the whole" by creating 1 more dollar.)

drkitten

15th September 2010, 07:32 AM

No it's not but being above zero-sum overall doesn't necessarily mean it will be like that for most of the population. If I make 100 dollars and 99 people lose 1 dollar that's a net positive but wow am I a dick.

(Edit: I mean that wouldn't seem good to damn near anyone, yet mathematically it's "good for the whole" by creating 1 more dollar.)

True. But the economic data shows that CfC didn't work like that. (And it's actually hard to design a "stimulus" package that would work like that....)

uruk

15th September 2010, 11:56 AM

Tippit

15th September 2010, 12:29 PM

Another transparent econ 101 lie.

Money circulates. The other people who benefited were those in a position to indirectly profit from the increased sales of automobiles. For example, the increased sales of automobiles directly helped the salesmen at the auto dealerships, who made more money. Because they made more money, they were able to afford to buy PS3 games for their children and new back-to-school clothes; this helped games retailers and manufacturers as well as clothing manufacturers. The clothing manufacturers were then able to go out and buy flowers for their wives anniversaries, which helped the florists and flower growers.

While this is true, it does not offset the costs bourne by taxpayers to fund the scam in the first place. All of the benefits you cited (and more, absent the government's capital mismanagement fee) would have accrued normally, had everyone been able to keep and spend their own money in the first place. This should be obvious, unfortunately it apparently isn't to you.

And so it goes. A ripple spreads to all corners of the pond. That's the whole point of an economic stimulus.

No, the premise behind stimulus is that if you don't want to spend your own money on what the government thinks you should spend it on, the government will take it from you and spend it as it dictates. The ripple in the pond is the side effect of the entire water level being lowered to begin with.

And you can see that effect by looking at the quarterly GDP for the USA over the relevant period (http://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm); GDP shot up dramatically during Q3 of 2009, but has stayed positive every quarter since then (in dramatic contrast with "the longest recession since the 1930s," where we experienced negative quarter-over-quarter growth for a year.)

And yet, GDP says nothing about standard of living, or the equitability of wealth distribution, as evident by the sky high real unemployment rate.

Nope. A net gain. Another transparent lie.

As usual, you're the only one lying. Your willfully myopic view completely ignores the total costs of all government action, whether by direct tax or the inflation tax. According to you, stimulus money grows on trees.

drkitten

15th September 2010, 01:15 PM

While this is true, it does not offset the costs bourne by taxpayers to fund the scam in the first place.

That depends if the economic growth produced by the program is greater than the costs. That's an empirical question, and one that has been rather firmly answered by subsequent events.

All of the benefits you cited (and more, absent the government's capital mismanagement fee) would have accrued normally,

Really? You have a control universe to demonstrate this in?

Because every competent economist disagrees. The whole point of CfC and similar stimulus programs was to provide an incentive for people to spend, because people weren't spending.

As usual, the easiest way to demonstrate that I'm right is by reading the reasons Tippit thinks I'm wrong.

drkitten

15th September 2010, 01:26 PM

The point of money sitting in a bank is that it gets circulated in the economy via loans and investments.

Under normal circumstances, it would be circulating. But the conditions in Q2 2009 weren't normal, and in particular, bank lending and investments were way down.

So money sitting in a bank wasn't getting circulated, which is why the stimulus was necessary in the first place. The people who had excess money were simply saving it (as opposed to spending it); the banks that had excess money were holding it in cash instead of lending it out.

Giving more money to the people who didn't need it would have just ended up sending it to the bank to sit there; subsidizing part of the purchase of goods instead encouraged people to dig into their own resources to purchase the rest, forcing consumption instead of savings.

Since the problem was an excess of savings over consumption, discouraging savings and encouraging consumption worked beautifully.

A Christian Sceptic

15th September 2010, 01:39 PM

Since the problem was an excess of savings over consumption, discouraging savings and encouraging consumption worked beautifully.

By worked ... do you mean it worked in encouraging people to spend and not save, correct?

The whole point of CfC and similar stimulus programs was to provide an incentive for people to spend, because people weren't spending.

I thought it was to save the environment.

It was called Cash For Clunkers not Cash For Stimulating.

Although real clunkers were exempt from the whole program. So - more accurately Cash For Certain Clunkers.

drkitten

15th September 2010, 01:52 PM

By worked ... do you mean it worked in encouraging people to spend and not save, correct?

That is correct.

I thought it was to save the environment.

Well, you thought wrong; the primary purpose was as a stimulus, and specifically "to increase automotive sales."

Read the CARS report (http://www.cars.gov/files/official-information/CARS-Report-to-Congress.pdf) if you like.

The CARS program achieved the objectives set out by Congress to increase automotive sales and aid the environment. In just a few short weeks of sales, nearly 680,000 older vehicles were replaced by new, more fuel-efficient vehicles. The nation’s economy benefited immediately from this stimulus program, which caused a distinct upward movement in GDP and created or saved tens of thousands of jobs at a very critical time in the recovery process.

Because of the unanticipated strength of consumer response, the program led to a sharp decline in dealer inventories and caused several major automakers to increase production schedules through the end of 2009, leading to an increase in employment and GDP in the fourth quarter as well.

In fact, it appears to have led to an increase in GDP in every quarter since then, although that wasn't known to the authors of the CARS report at the time, of course.

Of course, there are also long-term environmental benefits as well.

The environment will benefit over the longer term because operation
of the new vehicles in place of the trade-ins will reduce oil consumption and emissions of
carbon dioxide and related greenhouse gases over the next 25 years.

No one said that a project couldn't address several needs at once.

Bob Blaylock

17th September 2010, 12:43 PM

Read the CARS report (http://www.cars.gov/files/official-information/CARS-Report-to-Congress.pdf) if you like.

Big surprise here—the same criminals who imposed this massive, fraudulent scam upon the American people, embezzling and squandering billions of taxpayer dollars on it, have put out a report to explain how this scam “helped” us. And it's no wonder that someone foolish enough to have been taken in by the original scam is also foolish enough to believe the scammers when they try to justify it.

P.T. Barnum was right. Or at least he would have been if he had actually said the famous quote that is popularly attributed to him.

joobz

18th September 2010, 05:29 AM

Big surprise here—the same criminals who imposed this massive, fraudulent scam upon the American people, embezzling and squandering billions of taxpayer dollars on it, have put out a report to explain how this scam “helped” us. And it's no wonder that someone foolish enough to have been taken in by the original scam is also foolish enough to believe the scammers when they try to justify it.

P.T. Barnum was right. Or at least he would have been if he had actually said the famous quote that is popularly attributed to him.
The conspiracy runs deep. It seems that national autoworkers association is in on the scam
http://www.usatoday.com/money/autos/2009-07-30-cash-for-clunkers-program-suspended_N.htm
as is Duke University
http://www.rff.org/News/Press_Releases/Pages/did-cash-for-clunkers-work.aspx

Bob Blaylock

18th September 2010, 12:49 PM

The conspiracy runs deep. It seems that national autoworkers association is in on the scam
http://www.usatoday.com/money/autos/2009-07-30-cash-for-clunkers-program-suspended_N.htm
as is Duke University
http://www.rff.org/News/Press_Releases/Pages/did-cash-for-clunkers-work.aspx

Did you actually read those articles?

Of course the autoworkers would support this scam. They were the ones in a position to benefit the most from it, at the expense of the majority of those of us forced to pay for it. The main gist of that first article seems to be about how “successful” this scam was, with “success” being defined by how quickly it spent the original billion dollars allocated to it.

The second article points out a short-term increase in automobile manufacturing and the jobs related thereto, at the expense of manufacturing and jobs that would have existed later. It also points out the high cost of the alleged environmentalist-whacko benefits.“The program indeed provided some short-term stimulus to the auto market. However, if the program were to be judged as an environmental program, the implied costs of reducing gasoline consumption and CO2 emissions are quite high: the best case scenario suggests a cost of over $91 in government revenue for each ton of CO2 avoided and almost 90 cents for each gallon of gasoline consumption.”

Hlafordlaes

18th September 2010, 02:10 PM

@drkitten,

I must say I admire your perseverance in the face of repetitive, unanalytical dogma. Let's agree to the basics of your arguments and address some of what are still serious issues regarding stimuli and infrastructure spending.

Specifically, the other and far more worrisome deficit (trade) is further worsened when household consumption is increased by government spending, especially when that is in the form of unemployment insurance (which I am in 100% favor of while admitting to its side effects). And Yes, agreed, in spite of this stimulus spending still makes sense in a Great Recession, but this is the first of two factors to keep in mind.

The second issue regarding modernizing infrastructure is that, to the contrary of supply-side theories (hoaxes), even when businesses or investors either have lowered taxes, new subsidies or simply new orders in the form of govt spending in an attempt to upgrade infrastructure, investment in new US jobs and a permanent increase in the technology base may not result. The reason is that much of the newer tech is now based overseas, be it wind power (eg Spain's GAMESA is counting on ten of $millions in sales from the new Obama I&D initiative), high-speed rail, and so on.

Certainly it would be and is a shame when a stimulus program delivers jobs mainly overseas, directly increases the trade deficit, and fails as well to create or enhance competitive domestic private industries.

Rather than seek to bash stimulus spending, I'd like to discuss ways to lessen the impact on the trade deficit while respecting intl trade agreements, and build and/or reinforce the growth of US domestic green tech, hi tech transport, communications etc.

Your thoughts?

volatile

18th September 2010, 02:31 PM

Did you actually read those articles?

Of course the autoworkers would support this scam. They were the ones in a position to benefit the most from it, at the expense of the majority of those of us forced to pay for it.

:headdesk:

Do you want to think about what you just wrote? Do you understand even the most basic tenets of macroeconomics? Hell, do you even understand the most basic tenets of *reality*?

A Christian Sceptic

18th September 2010, 03:05 PM

:headdesk:

Do you want to think about what you just wrote? Do you understand even the most basic tenets of macroeconomics? Hell, do you even understand the most basic tenets of *reality*?

Can you explain more of what you're saying about what Bob Blaylock wrote? Thanks.

Dorian Gray

18th September 2010, 06:55 PM

No, the premise behind stimulus is that if you don't want to spend your own money on what the government thinks you should spend it on, the government will take it from you and spend it as it dictates. The ripple in the pond is the side effect of the entire water level being lowered to begin with. I think you're confusing the premise of the stimulus with the premise of taxes.... because what you described is exactly what the government does with taxes. I think we can all agree that there are areas we don't want to pay for, but that nevertheless we are paying for them. Even aspects of areas - for example, we might agree we need a military, but if we don't agree we should invade Iraq, we are simultaneously paying for something we want and something we don't want.

In fact, the complaint about the stimulus is really just a complaint about what the government is doing with the tax revenue it collects. It's just that people who don't think are being told the stimulus is somehow different from all the other taxes by the right, and they are believing it because economafinancethingy is harrrrd.

Dorian Gray

18th September 2010, 07:12 PM

Cash for clunkers destroyed wealth? Gee, then so did moving to computers from typewriters, moving to cars from buggies, moving to anything new from anything old.... because what do you think happened to all those typewriters, buggies, etc.? They were destroyed. And THAT was in the private sector with marginal government involvement at best!

You wanna argue that you'd be better off if you still had a typewriter? Because wouldn't that be ironic? Yes, it would.

Consider a huge game like Halo. Most people make a few purchases per year of a video game because they're expensive. Halo comes out and has world editors, multiplayer, etc., etc. and makes $200M on the first day. It has an extremely long shelf life for a game. Know what that means? People won't spend nearly as much money on other games, because Halo has such a long shelf life.

So take used cars. People won't buy new cars if there are a lot of used cars out there. Fewer new cars equals fewer dollars for car manufacturers. Possibly more dollars for aftermarket and mechanics, but still. So the government says "hey, we'll give you a boost if you buy a new car and trade in your old one, particularly your really old one." And people do it. It stimulates the purchase of more cars. There are multiple car companies. GM is one of them. The more money GM makes, the faster it gets well, solvent, economically viable, or whatever. The faster it gets well, the faster it goes on the market and gets out of government ownership!

And isn't a certain group of people complaining that the government owns GM?

Why, I believe they were and are complaining vehemently and loudly! So, remind me.... how is Cash for Clunkers bad, again?

Bob Blaylock

18th September 2010, 09:22 PM

Bob Blaylock

18th September 2010, 09:36 PM

So take used cars. People won't buy new cars if there are a lot of used cars out there. Fewer new cars equals fewer dollars for car manufacturers. Possibly more dollars for aftermarket and mechanics, but still. So the government says "hey, we'll give you a boost if you buy a new car and trade in your old one, particularly your really old one." And people do it. It stimulates the purchase of more cars. There are multiple car companies. GM is one of them. The more money GM makes, the faster it gets well, solvent, economically viable, or whatever. The faster it gets well, the faster it goes on the market and gets out of government ownership!

And isn't a certain group of people complaining that the government owns GM?

Why, I believe they were and are complaining vehemently and loudly! So, remind me.... how is Cash for Clunkers bad, again?

It's good, if you work for the automobile manufacturing industry. It's good if you're in a position to take advantage of the government handout to help buy a new car, when you otherwise could only have afforded to buy a used car. Some people did benefit from this scam. Nobody's denying this.

But the vast majority of people did not benefit. Those who benefitted did so at the expense of all of us who had to pay for it through taxes. Most of us had to pay taxes to support this scam, and got absolutely no benefit whatsoever in return.

Further, those of us who were in the market to buy a used car, but not in a position to be able to afford to buy a new car even with the help of this scam, were further harmed, because the supply of used cars has been diminished, and their price, as a result, increased.

If Big Brother were to take a thousand dollars in taxes from one person, and give a thousand dollars in handouts to another, you could say that the net effect was neutral; one person gained exactly as much as someone else lost. That is not the case here. Government spent billions of dollars to buy up valuable cars, at prices above their market value, just to destroy them. Those who previously owned those cars gained. Those in the business of manufacturing and selling new cars to replace those that were destroyed gained.

Everyone else lost. And because wealth was directly, deliberately destroyed, in the process of redistributing it, those who gained gained less than was lost by those who lost. This is less than a zero-sum game. On the whole, this left us, as a nation, poorer by the value of all the cars that were destroyed.

Instead of being like my earlier example, of government taking a thousand dollars from one person in taxes, and giving a thousand dollars to another as a handout, this is more like government taking a thousand dollars from someone in taxes, throwing five hundred dollars of it on to a bonfire, and then giving the other five hundred to someone as a handout.

A Christian Sceptic

18th September 2010, 10:02 PM

volatile

19th September 2010, 02:12 AM

Can you explain more of what you're saying about what Bob Blaylock wrote? Thanks.

What do you think happens to the money *after* it's in the pockets of the auto-workers that now have jobs, and the suppliers who have more business... And what do you think happens to the money after that?

If you think about the whole economy, you'll see what a nonsense "the expense of the majority of those of us forced to pay for it" is.

volatile

19th September 2010, 02:17 AM

It's good, if you work for the automobile manufacturing industry.

And if you supply food, or clothes, or housing, or leisure goods to people who work in the automobile manufacturing industry; or if you supply to people who supply to the automobile industry, or if you supply to the people who supply to the people who supply... well, you get the idea.

Why are right-wingers unable to understand that they do not live in a vacuum? Money spent on new cars (hell, money spent on anything, as Dr. K keeps pointing out) is good for EVERYONE. Read an economics textbook - or even just think about how many hands the dollar bill in your wallet has passed through before it got to you, and how many more it's going to pass through once you hand it over to buy a newspaper.

A Christian Sceptic

19th September 2010, 08:40 AM

Why are right-wingers unable to understand that they do not live in a vacuum? Money spent on new cars (hell, money spent on anything, as Dr. K keeps pointing out) is good for EVERYONE. Read an economics textbook - or even just think about how many hands the dollar bill in your wallet has passed through before it got to you, and how many more it's going to pass through once you hand it over to buy a newspaper.

EVERYONE is pretty all inclusive - wouldn't you say.

If someone takes $1000 from me and divides it up with everyone else - that's not good for me. Why am I not part of EVERYONE?

CfC was funded by borrowed money and taxed money. Did every tax payer take part? NO. Will every tax payer get that money from CfC exchanges? NO.

volatile

19th September 2010, 08:59 AM

EVERYONE is pretty all inclusive - wouldn't you say.

If someone takes $1000 from me and divides it up with everyone else - that's not good for me. Why am I not part of EVERYONE?

CfC was funded by borrowed money and taxed money. Did every tax payer take part? NO. Will every tax payer get that money from CfC exchanges? NO.

Please, read a book about macroeconomics.... for your own good.

Yes, "everyone" is all-inclusive. You are part of "everyone". There is money flowing through whatever business you work for that originates, somewhere down the line, from the stimulus. That's how economies work. You seem to lack the ability to see beyond the deduction line on your payslip, but that's just a problem you'll have to learn to get over.

Dr. Kitten has explained this far more eloquently than I can, but let me re-iterate: in recessions, the problem is primarily one of liquidity, so steps taken to ensure money is moved around the economy are a top priority. You do understand that auto workers need to eat, and thus keeping them in jobs benefits everyone, don't you? When they spend a dollar at the grocery store, the auto worker is better off and the grocer is better off. When the plant buys steel, the plant is better off, the steelyard is better off, and everyone who supplies and works for the steelyard is better off. You understand that no man is an economic island, and that we live in a social economy, don't you? You understand that you cannot ringfence the stimuls spending and claim "only a few benefited", don't you? You understand that one dollar of stimulus spending or one dollar of welfare benefits creates a good deal more than one dollar of economic activity, don't you?

ETA: Do you know what "growth" is, in economic terms? If economics worked in the way you seem to think it does, growth would be impossible!

Malerin

19th September 2010, 12:19 PM

oggiesnr

19th September 2010, 02:58 PM

Do you know how much cash businesses are sitting on?

At one level, scary amounts, at another level prudent amounts. I am sitting on cash (OK I'm small beer) but if I spend it I do not know whether there will be enough liquidity or demand to buy what I am then selling (or I might just be in the wrong line) and whether if I need a cash injection to help me over a hump (or invest in a better line later) the banks will be forthcoming at a price that makes commercial sense to me.

In uncertainty I hoard cash and buy at the last minute.

From the macro economic POV this is a disaster because I've stopped that cash circulating (and indeed I may be contributing to a double dip) but from my POV it is perfectly logical.

I'm a market trader (as in Market Squares not Stocks etc). I've recently made a mistake, a new line is not selling through and taking up limited stall space for no return. Because I paid cash I can take it off display, pay cash for a replacement line (already done) and I'll move this one at cost over the Christmas period. It's a small example but that's what a lot of businesses are doing. Having cash also means that I can survive (like last year) if markets don't happen for a couple of months because of bad weather.

When it's your house on the line Economics 101 takes on a whole new meaning :)

Steve

Dorian Gray

19th September 2010, 05:54 PM

It's good, if you work for the automobile manufacturing industry. It's good if you're in a position to take advantage of the government handout to help buy a new car, when you otherwise could only have afforded to buy a used car. Some people did benefit from this scam. Nobody's denying this.

But the vast majority of people did not benefit. Those who benefitted did so at the expense of all of us who had to pay for it through taxes. Most of us had to pay taxes to support this scam, and got absolutely no benefit whatsoever in return.

Further, those of us who were in the market to buy a used car, but not in a position to be able to afford to buy a new car even with the help of this scam, were further harmed, because the supply of used cars has been diminished, and their price, as a result, increased.

If Big Brother were to take a thousand dollars in taxes from one person, and give a thousand dollars in handouts to another, you could say that the net effect was neutral; one person gained exactly as much as someone else lost. That is not the case here. Government spent billions of dollars to buy up valuable cars, at prices above their market value, just to destroy them. Those who previously owned those cars gained. Those in the business of manufacturing and selling new cars to replace those that were destroyed gained.

Everyone else lost. And because wealth was directly, deliberately destroyed, in the process of redistributing it, those who gained gained less than was lost by those who lost. This is less than a zero-sum game. On the whole, this left us, as a nation, poorer by the value of all the cars that were destroyed.

Instead of being like my earlier example, of government taking a thousand dollars from one person in taxes, and giving a thousand dollars to another as a handout, this is more like government taking a thousand dollars from someone in taxes, throwing five hundred dollars of it on to a bonfire, and then giving the other five hundred to someone as a handout.
Can I assume you've chosen to ignore my comments about taxes being the exact same thing because you cannot possibly hope to address them in any meaningful lucid way?

Hundreds of billions of dollars have been spent in Iraq. Who did that benefit here? And did I have a choice in how the money was spent? And was it not a colossal waste of money?

Yeah, I'm not surprised you had nothing to say to that.

Dorian Gray

19th September 2010, 05:55 PM

Cars older than 25 years were not allowed to be traded in. Apparently gas guzzlers that people drive older than 25 years old weren't as evil as all the other gas guzzlers under 25 years old.
Well, cars that old tend to turn themselves off, unless they are restored, in which case they're toys, not transportation.

Bob Blaylock

19th September 2010, 06:54 PM

Can I assume you've chosen to ignore my comments about taxes being the exact same thing because you cannot possibly hope to address them in any meaningful lucid way?

I'm not sure what you expect me to say about your lies and irrelevancies.

Hundreds of billions of dollars have been spent in Iraq. Who did that benefit here? And did I have a choice in how the money was spent? And was it not a colossal waste of money?

I suppose if you believe that the “Cash for Clunkers” scam was good for the economy, then perhaps you also believe that the 9/11 attacks were also good, for the same reason—that huge amounts of valuable assets were destroyed, creating the opportunity for economic activity to replace them. From that point of view, then I suppose you would see it as incredibly wasteful to spend money on military activities to prevent many, many more 9/11-type attacks.

Robin

19th September 2010, 10:39 PM

I suppose if you believe that the “Cash for Clunkers” scam was good for the economy, then perhaps you also believe that the 9/11 attacks were also good...
Reductio ad 9/11. That is a new one to me.

KoihimeNakamura

20th September 2010, 02:32 AM

Incidently, you can still get cheap cars. Turns out I was wrong about used car prices.

drkitten

20th September 2010, 04:53 AM

At one level, scary amounts, at another level prudent amounts.

"Paradox of thrift."

You're waiting for sales to pick up, just like everyone else.

The problem is that everyone's waiting and too few people are actually buying, hence need for the stimulus.

Tippit

20th September 2010, 10:03 AM

"Paradox of thrift."

You're waiting for sales to pick up, just like everyone else.

The problem is that everyone's waiting and too few people are actually buying, hence need for the stimulus.

No, the problem is that people are either out of a job, in debt up to their eyeballs, or both. Since they can't counterfeit money, tax everyone else, or borrow from foreign central banks like governments can, they need to deleverage, which means less money for consumer goods. Or, they simply don't have any money to spend.

drkitten

20th September 2010, 10:14 AM

No, the problem is that people are either out of a job, in debt up to their eyeballs, or both.

Actually,.... no. (Wrong as usual.) Most people are still employed (the unemployment rate is only about 10% -- even if you double that to account for the discouraged, four out of five people still have jobs), and the median household debt (http://www.tableausoftware.com/public/gallery/household-debt-viz) is a quite manageable 18% or so, below the average for the 2000s -- and has actually decreased since the start of the recession.

The problem is not that people don't have money. The problem is that people don't feel secure about having money. It's not that people don't have jobs, but that they're worried they won't have jobs next month, so they're acting to preserve their savings.

Don't you ever get tired of being wrong with every sentence you type?

Dorian Gray

20th September 2010, 02:38 PM

I'm not sure what you expect me to say about your lies and irrelevancies. Nothing, and as soon as I say something that fits in that category, feel free to shut up. However, CfC was taking money from people and using it in a way not everyone agrees with. Taxes are taking money from people and using it in a way not everyone agrees with. Therefore, they are the same thing - using money paid by the taxpayer in a way not everyone agrees with. And therefore, if you don't like CfC, you don't like taxes, and your argument must apply to that too.

Keep on wishing, though. Your mom will probably feel sorry for you and at least tell you she believes you.

I suppose if you believe that the “Cash for Clunkers” scam was good for the economy, then perhaps you also believe that the 9/11 attacks were also good, for the same reason—that huge amounts of valuable assets were destroyed, creating the opportunity for economic activity to replace them. From that point of view, then I suppose you would see it as incredibly wasteful to spend money on military activities to prevent many, many more 9/11-type attacks. I'm not sure what you expect me to say about your lies and irrelevancies.

Emperor_Gestahl

20th September 2010, 10:02 PM

Actually,.... no. (Wrong as usual.) Most people are still employed (the unemployment rate is only about 10% -- even if you double that to account for the discouraged, four out of five people still have jobs), and the median household debt (http://www.tableausoftware.com/public/gallery/household-debt-viz) is a quite manageable 18% or so, below the average for the 2000s -- and has actually decreased since the start of the recession.

I'd take issue with a comparison of household debt with "the 2000s", as these were bubble years. Debts were irrational then because the market was irrationally assuming eternally rising property values. In such an imaginary environment income is irrelevant as merely having your claws in the property means you will be the winner. That wasn't true, but it was the backdrop of those debt levels. The levels were directly related to the price of the houses the debt was incurred for, which were too high (and of course the loans were written in absence of sufficient income to begin with).

Yeah it's decreased since the recession began, like gasoline decreases starting at the point it's set on fire. Even people who thought you ought to have had less gasoline around are not pleased by this development. At issue is not the maintenance or lack thereof of the status quo, it's the sanity of the status quo in the first place.

Delscottio

21st September 2010, 01:06 AM

Further, those of us who were in the market to buy a used car, but not in a position to be able to afford to buy a new car even with the help of this scam, were further harmed, because the supply of used cars has been diminished, and their price, as a result, increased.

So what you're really saying is that the wealth wasn't destroyed mearly transfered due to the lack of supply as you'd expect with any asset. The rolling stock on the road now has increased in price. It would be interesting to see how much the average price increase is and how many 2nd hand vechiles there are to see if wealth has actually been [i]created[i].

Come on Bob lets get this out in the open, you're not bothered about wealth destruction/ creation, the car makers jobs, the suppliers jobs, the grocery store jobs who feed the aforementioned etc what really pisses you off is others have dared to benefit from tax dollars while your savings pot for that new car suddenly isn't enough. Me me me is all I hear when reading your posts - the fact that the Cfc money may well have helped keep you in a job (indirectly) or a family member etc means nothing - you haven't directly benefited and it gets to you. It remeinds me of alot of the UHC arguments, but don't worry we have a whole political party over here with the same attitude so you're not alone.

Malerin

21st September 2010, 06:40 AM

Actually,.... no. (Wrong as usual.) Most people are still employed (the unemployment rate is only about 10% -- even if you double that to account for the discouraged, four out of five people still have jobs), and the median household debt (http://www.tableausoftware.com/public/gallery/household-debt-viz) is a quite manageable 18% or so, below the average for the 2000s -- and has actually decreased since the start of the recession.

The problem is not that people don't have money. The problem is that people don't feel secure about having money. It's not that people don't have jobs, but that they're worried they won't have jobs next month, so they're acting to preserve their savings.

Don't you ever get tired of being wrong with every sentence you type?

Household net worth peaked in 2007 at roughly $64.2 trillion. As home values fell and the stock market tanked, net worth fell to a low of $48.8 trillion in early 2009—a staggering 24 percent decline in just two years. It drifted upward for a while but in the latest quarter fell back to $53.5 trillion. From the peak of 2007, that amounts to about $100,000 in lost wealth per U.S. household.
http://money.usnews.com/money/blogs/flowchart/2010/9/17/how-consumers-lost-a-fast-15-trillion.html

But what's a few trillion dollars? People have plenty of money. :rolleyes:

My school district, for example, is laying off two more teachers, cause we have so much money!

drkitten

21st September 2010, 07:08 AM

Household net worth peaked in 2007 at roughly $64.2 trillion. As home values fell and the stock market tanked, net worth fell to a low of $48.8 trillion in early 2009—a staggering 24 percent decline in just two years. It drifted upward for a while but in the latest quarter fell back to $53.5 trillion. From the peak of 2007, that amounts to about $100,000 in lost wealth per U.S. household.
http://money.usnews.com/money/blogs/flowchart/2010/9/17/how-consumers-lost-a-fast-15-trillion.html

But what's a few trillion dollars? People have plenty of money.

You don't think that $53.5 trillion dollars is a lot of money? :rolleyes:

KoihimeNakamura

21st September 2010, 07:10 AM

Household net worth peaked in 2007 at roughly $64.2 trillion. As home values fell and the stock market tanked, net worth fell to a low of $48.8 trillion in early 2009—a staggering 24 percent decline in just two years. It drifted upward for a while but in the latest quarter fell back to $53.5 trillion. From the peak of 2007, that amounts to about $100,000 in lost wealth per U.S. household.
http://money.usnews.com/money/blogs/flowchart/2010/9/17/how-consumers-lost-a-fast-15-trillion.html

But what's a few trillion dollars? People have plenty of money. :rolleyes:

My school district, for example, is laying off two more teachers, cause we have so much money!

Strawman.

drkitten

21st September 2010, 07:51 AM

Strawman.

Not a straw man, just a complete lack of proportion. And one that actually proves my point.

The school district, for example, is laying off "two more teachers."

The Ames, IA school district has 324 teachers on its payroll -- losing two would be a loss of six tenths of a percent of the staff; in other words, 99.4% of the teachers in that district would still have jobs, but 100% of those 99.4% would be scared about losing their jobs and start cutting back on spending.

Why Ames? I just kind of pulled it out of a hat. There's nothing special about that particular district; it's an ordinary small-town district like thousands of others across the country. (Ames has a population of 50,000, so it's quite the small town.)

The odds are actually quite good that Malerin lives in a city and a school district much larger than Ames, in which case a loss of two teachers is even smaller. But even a hamlet like Bath, PA (population less than 3,000) still has a teaching staff of 89 teachers.

KoihimeNakamura

21st September 2010, 08:34 AM

I suppose that makes sense. I know I'm rather nervous about taking a loan out evne though I sorta have to.

Bob Blaylock

22nd September 2010, 12:06 AM

So what you're really saying is that the wealth wasn't destroyed mearly transfered due to the lack of supply as you'd expect with any asset.

No, I did not say any such thing. I did not say anything that any sane, honest, or rational person would interpret that way. Nor did I say anything that supports any of the other things you have absurdly attributed to me.

oggiesnr

22nd September 2010, 02:04 AM

To approach the OP from the other end...

What proof is there that tax cuts for the rich would have had any effect on the reccession? As I recall we seem to have had decades of "trickle down" but we still ended up here.

Steve

Malerin

22nd September 2010, 06:09 AM

You don't think that $53.5 trillion dollars is a lot of money? :rolleyes:

Appparently not (http://www.nytimes.com/2010/09/17/us/17poverty.html).

As Tippit points out, when households lose approx. 20% of their net worth in a year (when the savings rate was already almost non-existent), and unemployment more than doubles in that same time period, well a little devleraging is to be expected.

But during the depression, 75% of the population was working, so what was the problem? :rolleyes:

drkitten

22nd September 2010, 06:43 AM

Appparently not (http://www.nytimes.com/2010/09/17/us/17poverty.html).

As Tippit points out, when households lose approx. 20% of their net worth in a year (when the savings rate was already almost non-existent), and unemployment more than doubles in that same time period, well a little devleraging is to be expected.

But during the depression, 75% of the population was working, so what was the problem?

Already asked and answered. The (major) problem wasn't the 25% of the population that wasn't working -- it was the 75% of the population that was working and largely pulling its wages out of circulation instead of re-spending them. (Of course, there were other structural issues as well; people couldn't even save with safety with banks failing and people outright losing savings, which made the economically unproductive "cookie jar" a reasonable investment. This particular problem has since been fixed with the FDIC.)

To understand why this is so, just go back to those two laid-off teachers in Ames, IA. If just 150 of the remaining 300+ teachers realize that their jobs are at risk and cut their household spending by 5%, that will do several times more damage to the local economy than the loss of two jobs. (The 150 teachers cutting their spending will pull about seven and a half jobs worth of money out of the local economy; two unemployed teachers will of course cost two jobs.) If the local fire department, police department, and hospital staff also see the layoffs and start cutting back on their personal household expenses, it only gets worse.....

Delscottio

22nd September 2010, 12:32 PM

No, I did not say any such thing. I did not say anything that any sane, honest, or rational person would interpret that way. Nor did I say anything that supports any of the other things you have absurdly attributed to me.

Eh you said the remaining cars had increased in price as a result? So what did you mean?

A Christian Sceptic

22nd September 2010, 01:16 PM

(Of course, there were other structural issues as well; people couldn't even save with safety with banks failing and people outright losing savings, which made the economically unproductive "cookie jar" a reasonable investment. This particular problem has since been fixed with the FDIC.)

Isn't the FDIC bankrupt?

drkitten

22nd September 2010, 01:46 PM

Isn't the FDIC bankrupt?

No more so than the Transportation Department.

A Christian Sceptic

22nd September 2010, 02:21 PM

No more so than the Transportation Department.

Is the Transportation Department bankrupt?

JoeTheJuggler

22nd September 2010, 02:28 PM

Is the Transportation Department bankrupt?

I think the point is that the federal government can run deficits. So they can fund federal agencies with debt spending. It isn't especially meaningful to ask whether these agencies are bankrupt.

I suspect the question you're after is, does the FDIC have enough money in the Deposit Insurance Fund? This leads directly to the question, how much money is enough?

drkitten

23rd September 2010, 06:50 AM

I think the point is that the federal government can run deficits. So they can fund federal agencies with debt spending. It isn't especially meaningful to ask whether these agencies are bankrupt.

I suspect the question you're after is, does the FDIC have enough money in the Deposit Insurance Fund? This leads directly to the question, how much money is enough?

I believe that in late 2009, the FDIC had a negative asset to (expected) liability ratio. (That's since been fixed; FDIC raised the insurance rates it charged member banks.) But that's largely because it's not been able to build up cash reserves (for the same reason that it would be permitted to operate at a deficit); its year-to-year operating budget gets folded back into the Treasury. In practical terms, this means that it's been making money for the government that gets turned around and poured into building bombers and whatnot. A normal insurance company would instead have been building up capital reserves against anticipated shortfalls, and would also be carrying reinsurance against this kind of event.

The FDIC doesn't need to do this (and in fact would not be permitted to do that if it wanted to, because it would be politically unacceptable).

themusicteacher

29th September 2010, 12:32 PM

I'm gathering from this conversation that giving (more) money to the wealthy isn't going to do a damn bit of good to get the economy rolling again. Especially if you take the CBO estimates regarding how much of the deficit could be reduced if we did raise taxes on the rich (even more so if we do it to everyone), letting those tax-cuts expire sounds like a better thing every day. Sorry, but I don't buy the notion that a lot more people are going to lose their jobs if if the rich are paying 20% rather than 15% on their capital gains. It's a scare tactic from ideological banshees. Of course, nobody is truly serious about cutting deficits just as they were never serious about cutting spending when the good times were rolling.

It's been a sacrosanct idea of government spending since Reagan that you can have all you want right now (unless you're ideologically opposed to certain things like, say, public education) and pay later. Of course, we can point to one of the greatest era's of true prosperity, the Clinton years, when tax rates were higher and there was more stability (btw, did those tax rates stifle private industry/business from investing and hiring workers?) and then contrast them with the Bush II era to see that lower taxes don't necessarily lead to real growth. In fact, it would seem apparent that lower taxes and less regulation invite people to game the system.

The argument always seems to come back to an ideological position, not one born out from history or evidence: if you give rich people money, they'll give it to everyone else in the form of jobs, technology, etc. That may be true sometimes but I don't think that if we kept the tax cuts, we'd see a surge of hiring within the next few years.

drkitten

29th September 2010, 12:53 PM

I'm gathering from this conversation that giving (more) money to the wealthy isn't going to do a damn bit of good to get the economy rolling again.

That's a slight overstatement. But it will certainly do less than many other things that could be done with that money.

Especially if you take the CBO estimates regarding how much of the deficit could be reduced if we did raise taxes on the rich (even more so if we do it to everyone), letting those tax-cuts expire sounds like a better thing every day.

Don't get too hung up on those CBO estimates regarding the deficit. The deficit, right now, is not an issue. Paying off the national debt is about the second-silliest thing that could be done with the money right now.

We'd be better off doing another massive "Cash for Clothes Dryers" push, which would at least put people to work making, transporting, selling, and installing new dryers and reduce power consumption in the long run.

TraneWreck

29th September 2010, 01:07 PM

Another good Krugman post on the topic of stimulus today:

http://krugman.blogs.nytimes.com/2010/09/29/unserious-central-bankers/

suds101

4th October 2010, 06:11 PM

Please, read a book about macroeconomics.... for your own good.

Yes, "everyone" is all-inclusive. You are part of "everyone". There is money flowing through whatever business you work for that originates, somewhere down the line, from the stimulus. That's how economies work. You seem to lack the ability to see beyond the deduction line on your payslip, but that's just a problem you'll have to learn to get over.

Dr. Kitten has explained this far more eloquently than I can, but let me re-iterate: in recessions, the problem is primarily one of liquidity, so steps taken to ensure money is moved around the economy are a top priority. You do understand that auto workers need to eat, and thus keeping them in jobs benefits everyone, don't you? When they spend a dollar at the grocery store, the auto worker is better off and the grocer is better off. When the plant buys steel, the plant is better off, the steelyard is better off, and everyone who supplies and works for the steelyard is better off. You understand that no man is an economic island, and that we live in a social economy, don't you? You understand that you cannot ringfence the stimuls spending and claim "only a few benefited", don't you? You understand that one dollar of stimulus spending or one dollar of welfare benefits creates a good deal more than one dollar of economic activity, don't you?

ETA: Do you know what "growth" is, in economic terms? If economics worked in the way you seem to think it does, growth would be impossible!

I think you summed up the basic liberal economic view point fairly well and the fundamental differences between liberal and conservative economic viewpoints.

You keep telling people to pick up a macroeconomic book and I do not disagree with you. However, in order to discuss the macroeconomic effects of taxing the wealthy as well as the social loss from the cash for clunkers, one must pick up several more economics books. I would love for you to summarize your understanding of the "most basic tenets of macroeconomics". Unfortunately, it seems as though you are stuck on your Econ 102 Macro book.

The basic question we are arguing, in my opinion, is whether someone believes the opportunity cost of government expenditures and subsidies is greater than those programs social/economic benefit. Stimulating the economy does not just mean transferring wealth or increasing money liquidity.

The "cash for clunkers" program was designed to stimulate the economy and help/save the struggling car industry. Every tax payer in America paid for the clash for clunkers program, whether they used it or not. If you believe that these economic losses (both from taxes and the opportunity cost such as the government no longer being able to enact a similar program with heating appliances or spending that tax money on a new public works job) resulting from this 3,000 rebate is less than the economic benefit, than the cash for clunkers did its job and stimulated the economy.

The argument begins with how much "other economic losses" someone acknowledges and how much "economic benefit" an individual credits such a program. While this does not apply to every cash for clunkers purchase, my father used the clash for clunkers to trade in his used and very old Audi for a new Honda civic. From the surface, this would appear to have grown the economy, especially since this was the first new car I have ever seen my father purchase. However, during that time, he was looking for a car to replace his old and currently broken audi. He used the clash for clunkers because it was a greater value than the trade in value as well as potential car repairs. So with the choice of paying for repairs (and giving a car mechanic and all the other workers who went into the making of that car part a small portion of their salary) or buying a new car, the government made that decision easier. However, by not trading in his car, he could have indirectly hurt the wealth of another person who now has to pay more money for a decreased supply of used cars or take on debt to pay for a new car. These are all negative economic externalities and costs. I could keep going with the potential negative consequences of his government influenced, economic decision my father made. Just as someone could list many benefits of his purchase of a new car. However, historically, such fiscal policies lead to only short term benefits and no structural, long term economic growth.

Going back to the original topic of the OP, the reason conservative argue against raising taxes on the rich during the recession is because of the definition of a recession is a decrease of economic growth (GDP being the indicator) for a certain period of time. Getting out of a recession and for a sustainable amount of time means decreasing GDP in the long run. Generally, people are in the top tax bracket, for longer than a year, because they made smart economic decisions with their money. People who inherit their money will only be a member of the top tax bracket for a single year and unless they also make smart economic decisions or inherited enough money to earn 250k in interest, they get to sit on there money, not pay taxes and spend. The 250k+ earners are not noblemen stealing money from poor workers, but are usually the people who make the decisions on whether to increase labor or capital. As their taxes increase, their marginal revenue will decrease leading to a decrease in supply(capital or labor). Any increase in demand a firm may experience from tax breaks to the poor While taxes on the productive members of a society can be beneficial,in the long run, the opposite is generally true during an economic recession or prologued slowdown. While such government expenditures might help get an economy out of a recession more quickly than if nothing was down, it will have done nothing to help a companies increase efficiency or productivity (quantity/Labor or Capital) leading to higher natural rates of unemployment and lower GDP per capita in the long run.

For another example of this, read FDR’s Folly by Jim Powell.

Did not mean to rattle on as much as I did but when people state things such as....

Money spent on new cars (hell, money spent on anything, as Dr. K keeps pointing out) is good for EVERYONE. Read an economics textbook - or even just think about how many hands the dollar bill in your wallet has passed through before it got to you, and how many more it's going to pass through once you hand it over to buy a newspaper.

And stating that basic macroeconomic principles support this it is absurdity. "is good for EVERYONE"!? Really? Again, how was the car mechanic helped by cash for clunkers? How was the family who could not afford to trade in their car but had to pay taxes helped? Especially down the road when that family must trade there car in. Money spent (by the government) on "anything" is not good for "everyone", it is generally only good for those the government wants it to be, and generally, only in the short term. While, money spent (by tax paying consumers and business) on things which increase their well-being or marginal productivity is generally good for everyone in a free market society.