Several politicians and others are currently being quoted that spending the better part of a trillion dollars in an attempt to stimulate a disastrously damaged economy is not the correct thing to do.

Unfortunately, the critics never seem to offer an alternative. Do they propose that the amount should be smaller? Larger? Should the government stay out of the business of trying to stimulate the economy and permit the free market to make the corrections? Usually after the criticism of the plans being put forth by the new administration, no other alternative plans are proposed. Criticisms are limited to a dislike for what's being proposed, but with no "better idea" offered.

So a question for this forum might be...

Should the huge economic stimulus package being designed by President-elect Obama and his financial advisors be enacted into law? Should the amount be increased? Decreased? Or should the government simply do nothing, let the free market make whatever corrections it can, and tend to other issues of national governance?

I would suggest that as participants respond to these questions that they incorporate some sort of economic argument on why the alternative ideas they suggest might work better. It would add to an interesting discussion of respondents opined on how their alternative suggestions would improve the economy, whether there's a chance their ideas might actually worsen the situation, and what effect alternative suggestions would have on the duration of the current economic cycle. If references to other alternatives or other expert opinion can be cited in replies, they might add to everyone's understanding of the economic theory underlying the alternatives being considered or suggested by both the new administration as well as their critics.

I am not sure that you are listening to the critics. They are offering alternatives. The biggest one is to make the Reagan tax cuts permanent and to eliminate the capital gains tax altogether for five years. This would serve to take a lot of uncertainty out of the future direction of the Obama administration.

Taking billions upon billions of dollars to make government jobs would be foolish. The government has never been known to do anything efficiently.

You can have a very large stimulus program but if the people do not spend the stimulus money it will do no good. Likewise if the government spends a stimulus money it will do no good. I think as far as a stimulus goes whatl we needs to do is to devise a method of getting money into the hands of the people conditionally that they spend it. For the government to put billions of dollars out there on WPA projects in which they are actually bailing out cities and states for not having taken care of the infrastructure as they have been paid to do would be counterproductive in my opinion.

We need to create demand for products through consumption. This is done by the consumer doing what he does best, Consume. That will decrease the inventories of goods on hand requiring manufacturers to produce more which will require that they increased their resources such as employees thereby creating jobs.

Basic economics is the best route. The reason that we are in this situation is because factions in our government tried social engineering. Tried to give the illusion of redistributed wealth by helping people to consume what they could not pay for. The bill came due. Let's not go down that road again. Consumption produces a demand for goods. Demand produces production. Production produces jobs. An oversimplification but those are the rules as I understand them.

Taxes, take spendable cash out of the hansd of the people.

Thanks, Yoda. If many of us exchange ideas like yours, we'll all be better prepared to understand what's happening.

Your proposal for permanent tax cuts caused me to head off to do a little research. I found an article by Diana Furchtgott-Roth on a website called The Great Debate that was entitled "The $300 billion tax cut: Let’s do it right." http://blogs.reuters.com/great-debat...s-do-it-right/

The Obama plan has $300 billion in tax cuts built-in, but they are not permanent as both you and Ms. Furchtgott-Roth observed. I found what she said in the article interesting because it relates to some important economic theory which originally won Milton Freidman a Nobel Prize. In her article Furchtgott-Roth explained that while the Obama proposal does have $300 billion in tax cuts included, they are temporary, applying only to the first two years. Further, those cuts would not be sent out in lump-sum checks, but would be largely reduced payroll deductions, which would be expected to encourage increased consumer spending.

But as you suggested, Furchtgott-Roth also points out that the problem is that tax cuts that are temporary and will have limited effects on spending behavior. Friedman won a Nobel Prize for his permanent income hypothesis, which showed that spending decisions are made not by the amount of money in consumers’ pockets, but by their expectations of future income. (I guess that's why the index of Consumer Confidence prepared by the University of Michigan is so widely reported each time it is issued.)

At least we understand a little more about the positions being taken by the "dueling economists", with a little politics mixed in I'm sure. I can only think that Obama wants to make the tax cuts temporary, knowing that if and when the economy recovers, that the increased tax revenues resulting from the "sunsetting" of his proposed cuts along with dramatic reductions in government spending, will be necessary to begin to whittle away at deficit spending and the humongous national debt. But that's just my opinion...or my hope anyway.

Maybe others might have enlightening alternatives and citations, as well. The more we share, the more we'll all understand about this situation. One thing is for sure...there is no totally "right" or totally "wrong" solution to this financial crisis. Hopefully, as the result of discussions like this, we'll all be better prepared to understand how the mixture of alternatives might work.

By the way, I agree that you hit Econ 101 right on the head...Consumption produces a demand for goods. Demand produces production. Production produces jobs. If we all remember that objective as we assess the plans being put forth, we'll be a lot better off in understanding them. I guess I might add one other element to your economic formula. That would be that any plan should drive the consumption-demand-jobs engine as quickly as possible.

The problem is everyone is looking for a solution without ever dissecting the problem to its root causes, and then attacking the causes en masse. This "singular path" type of fix presupposes there is a "silver bullet" cure.

We're in this mess because of a combination of root causes: 1) lousy balance of payments: 2) Ponzi-syle banking practices with the hopes that the acme will never be found; 3) illegal immigration which floods the labor force with cheap labor, reducing the value of these jobs and taking those wages via remittances ($40Billion worth) shipped out of the US each year; 4) foreign policy which is based on "rewarding" via most-favored-trading-partner status, which subsequently destroys the domestic manufacturing base and impacts negatively the balance of payments problem; 5)........ this could go on for pages!

Just throwing money into the air and seeing whether it solves anything is like farming where one throws seed on the ground without tilling, sowing and erecting scarecrows.

If there is ever going to be a "fix," we must first make a bunch of mini-fixes on each of the root causes. Otherwise, we're just trying to patch a sinking ship from the outside of the hull, without ever looking at why there's water in the hold to start with.

I thought that maybe instead of giving the car companies all that money, that an individual be given $5000 to $10000 toward the purchase of a new car depending on the amount of the new car. Could that have made a difference?

Originally Posted by Villages Kahuna

Thanks, Yoda. If many of us exchange ideas like yours, we'll all be better prepared to understand what's happening.

Your proposal for permanent tax cuts caused me to head off to do a little research. I found an article by Diana Furchtgott-Roth on a website called The Great Debate that was entitled "The $300 billion tax cut: Let’s do it right." http://blogs.reuters.com/great-debat...s-do-it-right/

The Obama plan has $300 billion in tax cuts built-in, but they are not permanent as both you and Ms. Furchtgott-Roth observed. I found what she said in the article interesting because it relates to some important economic theory which originally won Milton Freidman a Nobel Prize. In her article Furchtgott-Roth explained that while the Obama proposal does have $300 billion in tax cuts included, they are temporary, applying only to the first two years. Further, those cuts would not be sent out in lump-sum checks, but would be largely reduced payroll deductions, which would be expected to encourage increased consumer spending.

But as you suggested, Furchtgott-Roth also points out that the problem is that tax cuts that are temporary and will have limited effects on spending behavior. Friedman won a Nobel Prize for his permanent income hypothesis, which showed that spending decisions are made not by the amount of money in consumers’ pockets, but by their expectations of future income. (I guess that's why the index of Consumer Confidence prepared by the University of Michigan is so widely reported each time it is issued.)

At least we understand a little more about the positions being taken by the "dueling economists", with a little politics mixed in I'm sure. I can only think that Obama wants to make the tax cuts temporary, knowing that if and when the economy recovers, that the increased tax revenues resulting from the "sunsetting" of his proposed cuts along with dramatic reductions in government spending, will be necessary to begin to whittle away at deficit spending and the humongous national debt. But that's just my opinion...or my hope anyway.

Maybe others might have enlightening alternatives and citations, as well. The more we share, the more we'll all understand about this situation. One thing is for sure...there is no totally "right" or totally "wrong" solution to this financial crisis. Hopefully, as the result of discussions like this, we'll all be better prepared to understand how the mixture of alternatives might work.

By the way, I agree that you hit Econ 101 right on the head...Consumption produces a demand for goods. Demand produces production. Production produces jobs. If we all remember that objective as we assess the plans being put forth, we'll be a lot better off in understanding them. I guess I might add one other element to your economic formula. That would be that any plan should drive the consumption-demand-jobs engine as quickly as possible.

I have mentioned Milton Friedman many times in my posts and would recommend watching his television series or reading his books. He has a unique way of cutting through the "econobabble" that most people just get confused by and regurgitate in mass.

Milton Friedman uses economics basics and simple cause and effect facts, to point out why and how the decisions that we and the government make affect our lives. One of his examples explains how the governments desire to assist low income tenants recover from apartment fires, cause the very people that were suppose to be grateful for the help, burn themselves out of their units to get the free money!

I think that Milton's works explains how I feel better than I could ever put into words myself.

I was feeling the same way.

I am sure there is a solution, but not to sure that anyone has a good idea of what it is and where it is and how to fix it. But Yoda and VK are on right course.

SteveZ as always has very good input. ALso all the money we spend on IRAQ and rebuild their schools and country. Add all that up since it has started and tell me what you come up with. As far as the auto industry. They need to change and have needed to change for a long time. Got to move ahead with cars that do more than 0-60 in a blink of the eye. I dont care who says what, i believe it is a waste of more money to bail out the auto companies. as with the stimulus money, just because you bail out the auto big guys, dont mean we are buying them. The last thing I want to do right now is buy another vehicle. The way things are going, most people are just like me and dont want to take money out of their pocket so fast for expensive car that cost as much to operate as it does to pay each month in most cases.

The answer lies with in. sit back and think of what the problems are. I believe SteveZ gave us a few of them. Now what would you do to fix them. Take Illegal Immigration. Lets fix that issue now. Easily said then done. We got to have so many meetings in so many places with so many people just to schedule a real meeting. Then you got to have the right venue, then you got to schedule a report on the meeting you just held. Oh did i forget about the budgets for all the meetings? Then when you get all this information all input to program and do you spreadsheets, then you realize, is this an election year or is this going to **** some poeple off? Then it gets put on the back burner. That is how it is done in DC? Come on, even Fred Thompson noted that in a speech he gave years back. He said nothing gets done in congress. To many meetings just to put something on the calendar. Then if it is going to be unpopular with the people you reperesent, you axe the deal.

That is the problem, if you know what the root cause is, no one wants to chop that root off. THE DAY YOU GET SOMEONE TO PULL OUT A BIG AXE AND HAVE THE *&$%)* TO SWING THE AXE, YOU WILL SEE PROGRESS.. excuse my little additives there....

I don't disagree with either SteveZ or GMoney on the need to fix some of the problems that underly our economic difficulties. But if we go back to the Econ 101 sequence that was discussed earlier, fixing those problems before injecting the stimulus to start the consumption-demand-jobs sequence seems like it will take too long. How long will it take to fix our immigration problem? Could we quickly agree upon and implement a new trade policy? How long will it take to re-form banking regulations to prevent future recurrences of what we've experienced recently?

All of those issues are important, but they will take years to change. What happens to our economy in the meantime? Economists are saying that unemployment will reach well into two digits by the middle of 2009. Even now, we have enough people unemployed to populate a city the size of metropolitan Chicago. Regardless of the risks of inefficiency, doesn't it appear that the large economic stimulus is needed in the next few months, not several years from now? Even without the stimulus, economists are describing our current situation as the worst recession since WWII. Isn't the stimulus to re-start our economic engine needed now?

If there was anything encouraging coming from President-elect Obama today it was his statement that he didn't presume that his ideas or those of his economic team were the only ways to stimulate the economy. He openly invited those that thought they had better ideas to bring them forth, and if they were better than what was being planned they'd be adopted.

The Obama first term hasn't even begun yet, but he seems to be conducting himself in a way to achieve true consensus--to level far beyond just the simple majority needed to win a Congressional vote. I still have enough cynicism left over from the last 10-15 years of polarized politics not to get my expectations too high in this regard. I sure hope I'm not wrong in feeling just the beginnings of enthusiasm for what appears to be a new style of political leadership. Now if the rest of the old-style gang in the Congress will change their ways, maybe we can not only solve our economic problems, but some of our other domestic and foreign policy problems that have been growing in recent years.

the government has shown time and again it is not adept at making things happen.....or happen effectively. As long as the government continues to pursue solutions without a PLAN, there will be no success.
It is the fundamental requirement of effective management.....to know what, where, when, how much...is it on track? No? How far off track and in which direction? What does it take to recover? How long? How much?
Etc....etc....etc....
Accountability 101!!!!! Totally absent.
What is being done now is throwing money in every direction with the hope some hits the target....any target...even the suggestion of the word "target" implies a plan. It has a specific goal toward which to aim and if one misses they know it.....
Lawyers and politicians have no concept of planning or accountability.....therefore why is there any expectation they will solve anything?

Only the free enterprise system can do that.

BTK

I'm not an economist, but as a student of history I notice that whenever there has not been government intervention, economic downturns become crippling for the average American.

Before the federal income tax, a 19th century society of haves and have nots was becoming the norm. And the haves were a tiny number of aristocrats who controlled a huge segment of the nation's wealth. The have nots were living in essentially deplorable conditions. We romanticize about the pioneers, immigrants and workingmen now, but they lived at the mercy of the wealthy. Until the trauma of the Civil War had finally subsided and the excesses of the rich convinced the nation that we were not living in a democracy, the government finally became strong and united enough to begin acting to protect the rights of individuals and provide pathways of opportunity for the average American, despite the opposition efforts of the wealthy. Teddy Roosevelt seemed a decent candidate for President but became a turncoat to most of his aristocrat peers because of his fascination with the common man, including those who didn't bathe often and those who recently came from Europe pleading for refuge.

Post-war euphoria, lack of regulation, and unbridled greed created the Great Depression. Federal spending and regulation not only produced a dramatic improvement in economic conditions but it laid the groundwork for growth which wiped out the debt incurred in Roosevelt's work programs. The incredible infrastructure built by depression era workers provided the groundwork and tools for such productivity that we were able to change the outcome of a catastrophic world conflict and prosper to an unprecedented degree in post-war years.

Instead of signaling the decline of America, maybe the outrageous greed and mismanagement and the consequent deep recession is our opportunity to rebuild. If the government closes the loopholes which allowed financiers to steal billions and then puts millions to work rebuilding our infrastructure, I see the possibility of future prosperity. Spending billions on domestic projects using domestic materials and labor puts money in the pockets of millions of Americans who will then spend virtually all of it, thus further stimulating the economy. If the new administration makes reasonably sensible decisions in how to spend stimulus money, this huge investment in America could be the way we position our nation to a leading position in research and development of the world's future.

The bailout money already spent has gone directly to corporations. Why are we surprised that unemployment has risen sharply since those handouts. The answer is not to give money or tax cuts directly to corporations or the rich. They have never used it to directly create an economic surge. When the rich do spend they are strictly motivated by self interest. Often their investments are made outside the country and become detrimental to our national interests.

I only hope the Republicans in the next Congress are smart enough to add some good ideas and loyal enough to their constituents and their country to do what's right. I hope they will not simply be opponents.

Just a few thoughts:

1. If we haven't identified what has caused the economic problem(s), what makes us think that flooding the economy with what is more-devalued currency will solve the problems? That's like saying "take 2 aspirin and call me in the morning" to someone with a broken foot and cancer. Econ 101/201/301/401 doesn't prescribe a flood of additional currency as the cure-all/end-all. It make actually do more harm than any good, especially in the willy-nilly way it's being handled and dispensed.

2. "Government" seeking funding sources via creative taxation to have the revenue to fulfill lawful programs is one thing, but "government" acting dictatorially with an "I know better than you dumb folk" is another. We have quite a series of checks-and-balances so that dumb acts don't happen, yet there always is rush to bypass these controls because someone does a "Chicken-Little" act, claiming life as we know it will cease unless we hurry. Point in case - where HAS the first of the bailout funds gone, to whom, how much, why, and what did it do?

In short, we have common sense and a modicum of wisdom. Yet, we seem to toss both into the dustbin because some unknown and unnamed staffers (who are the only ones really writing the documents) for a few congresspersons put together a plan which promotes the congressperson as the guru of life.

Again, where did the money go? When that question is answered - in substance - will I have any faith in those who claim to be my protectors.

Federal spending and regulation not only produced a dramatic improvement in economic conditions but it laid the groundwork for growth which wiped out the debt incurred in Roosevelt's work programs.

By what measure do we say that the policy that was put in place during the 30s which resulted in unemployment to be above 14 percent throughout the entire decade was a "success"? I would think that we would look at the policies put in place during that time period and do the opposite because they clearly didn't work in restoring our economic ship to any level that we would find to be acceptable.

Originally Posted by ijusluvit

I'm not an economist, but as a student of history I notice that whenever there has not been government intervention, economic downturns become crippling for the average American.

Before the federal income tax, a 19th century society of haves and have nots was becoming the norm. And the haves were a tiny number of aristocrats who controlled a huge segment of the nation's wealth. The have nots were living in essentially deplorable conditions. We romanticize about the pioneers, immigrants and workingmen now, but they lived at the mercy of the wealthy. Until the trauma of the Civil War had finally subsided and the excesses of the rich convinced the nation that we were not living in a democracy, the government finally became strong and united enough to begin acting to protect the rights of individuals and provide pathways of opportunity for the average American, despite the opposition efforts of the wealthy. Teddy Roosevelt seemed a decent candidate for President but became a turncoat to most of his aristocrat peers because of his fascination with the common man, including those who didn't bathe often and those who recently came from Europe pleading for refuge.

Post-war euphoria, lack of regulation, and unbridled greed created the Great Depression. Federal spending and regulation not only produced a dramatic improvement in economic conditions but it laid the groundwork for growth which wiped out the debt incurred in Roosevelt's work programs. The incredible infrastructure built by depression era workers provided the groundwork and tools for such productivity that we were able to change the outcome of a catastrophic world conflict and prosper to an unprecedented degree in post-war years.

Instead of signaling the decline of America, maybe the outrageous greed and mismanagement and the consequent deep recession is our opportunity to rebuild. If the government closes the loopholes which allowed financiers to steal billions and then puts millions to work rebuilding our infrastructure, I see the possibility of future prosperity. Spending billions on domestic projects using domestic materials and labor puts money in the pockets of millions of Americans who will then spend virtually all of it, thus further stimulating the economy. If the new administration makes reasonably sensible decisions in how to spend stimulus money, this huge investment in America could be the way we position our nation to a leading position in research and development of the world's future.

The bailout money already spent has gone directly to corporations. Why are we surprised that unemployment has risen sharply since those handouts. The answer is not to give money or tax cuts directly to corporations or the rich. They have never used it to directly create an economic surge. When the rich do spend they are strictly motivated by self interest. Often their investments are made outside the country and become detrimental to our national interests.

I only hope the Republicans in the next Congress are smart enough to add some good ideas and loyal enough to their constituents and their country to do what's right. I hope they will not simply be opponents.

There is much evidence that the Governments intervention prolonged the Great Depression. Here is the first link that I came to explaining how. I have also read and seen "Milton Friedmans Free to Choose" and he also explains how the government intervention prolonged the Depression.

You mentioned "unbridled greed" and I believe that same greed, coming from the general population living beyond their means, caused the current financial problems. Government intervention in infrastructure improvements, while beneficial to construction companies and workers, does nothing for the ignorant masses deep in debt. Where are the Billions that you suggest spending come from?

http://www.businessandmedia.org/arti...027150030.aspx - 17k -

The news I heard from the Treasury Department this week was they have no idea where the first chunk of bail out money has been going. They simply can't track it and said so. Now they want another 800 billion. What a mess. I simply don't trust the government with one single dime of it.

Private sector and small business stimulate the economy pure and simple. It always has. Want to put people back to work? Free up capitol. How do you do that? Capitol gains cuts. It works every time it's tried.

Instead of the government spending our money (which by the way they think is theirs) they need to give deep tax holidays to everyone. Give people more of their own money to spend and free up capitol for business and you will see the economy come back very quickly. Obamas plan if implemented will put us in the ditch for years to come.

Tax cuts work. Government spending does not.

I've asked this a dozen times and no one can give me an answer. When in history has government ever spent our economy back into prosperity?

Then answer is NEVER. Why so many people think it's the answer now I'll never know.

Did we not learn anything?

"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."

http://newsroom.ucla.edu/portal/ucla...px?RelNum=5409

Some have opined that getting money into the hands of consumers in the form of tax cuts would be a more effective way of stimulating the economy than the government spending on things like roads, bridges, schools, the power grid, etc.

Let's look at the numbers. If the Congress approved a stimulus package of, say, $1 trillion, and that amount was simply divided up and given to tax payers in the form of either a tax rebate or a temporarily reduced tax rate for a couple of years, that means each of 300 million Americans would get about $3,300. A family of four would get $13,200. Spread over two years, that would be $6,600 per year.

Now the question would be, how would Americans spend that money? Would they spend it on things that would increase consumption of items that would result in increased production, thereby producing new jobs, and begin to re-start the U.S. economy? Or would they use the money in ways that does not increase demand, production and jobs?

If the pubic spent that additional money on things like new houses, new cars, new appliances for their homes, additions to their homes, new furniture, etc., there's a chance that the economy would be re-started. Those types of expenditures have a multiplying effect, increasing the business of all the suppliers of goods and services needed to produce and deliver those types of items. That type of increased demand would require increased production, creating new jobs, and producing more income--thereby re-starting the economy.

But if the public used the money to pay down existing credit card balances, buy lottery tickets, buy and consume groceries, take vacations, or even deposit the money in their savings accounts, the money would have little effect on increasing demand, production and the creation of new jobs. That type of use of the money would have little effect on demand, production and jobs.

So how would American families spend the additional $13,200 they'd be given over a two-year period? Would it be on things that would have the effect of stimulating the economy? Or would they spend the money on more frivolous things, or use it to pay off debt or save it?

Remember, it isn't likely that they'd be sent a check for that amount. That was tried last year and didn't work. Statistics show that most of the 2008 rebates were either saved or used to pay down existing debt, not to purchase new "things" to get the economy re-started. Should the Congress roll the dice another time with a trillion dollars? What if the public repeats what they did last year and the economy remains in the doldrums? Our national debt is approaching the same level as a percentage of GDP as it was during WWII, about 15% of GDP. Most economists believe that this trillion dollars is probably the last large amount that will be affordable for use as an economic stimulus.

So again, think about how the trillion dollars should be used. Is government at all efficient in spending money? No. But if they fund things like roads, bridges, schools, a power grid, etc., it's pretty certain that the money will be spent to hire the workers, buy and transport the materials to build those items, etc. There almost certainly would be a multiplier effect to those types of expenditures. And at least we would wind up with improvements to our infrastructure that will be needed in the future anyway.

So again, if the Congress approved a $1 trillion stimulus program and appointed you to spend it in a way that will have the highest probability of stimulating the country's economic engine, how would you spend it?

Remember, this is quite likely the last trillion dollars that will be available and affordable for such fiscal experimentation.

No more talking about who caused the current problem, how government has performed in the past, who's in the Congress that we like or don't like, which political party would do better than the other, or what the social policies of the parties are. There's no more time to talk about that stuff. We are facing a life-changing economic crisis which if not reversed will effect the lives of our children and grandchildren and largely dictate the role that the U.S. will play in the world. We're in a position right now where we have to play the cards that we've been dealt. We've been "called" and there aren't any more cards to be dealt. Are we all-in, do we fold, or is there something in-between?

What would you do?

P.S. Steve, I too want to know what happened to the initial $350 billion. But I also think there is a high degree of urgency to make decisions on what to do to stimulate our economy. For those who think we're being rushed to judgement, doing nothing until more hearings are held and facts become known might be appropriate. But for those who believe there's a degree of urgency, then the question I posed above is one that requires some thought.