Friday, January 25, 2008

An Unqualified Opinion UPDATED

I am not an economist. (The Update is at the end.)

(To prove that point, back before I went to law school, I was considering continuing to work full time and take night classes. Since it had been a while since I’d been in school I took two graduate level classes while working to see how it would pan out. One was microeconomics. The instructor was on the adjunct staff. He was a full time economist for a regional bank. He took a mathematical approach to the subject, which left me in the dark. I’d regularly ask something along the lines of “could you use words to explain that?” I ended up with an A. On the graded bluebook he wrote a note saying he’d enjoyed having me in the class as “I knew if you understood something, everyone did.” I was a teaching tool.)

So anyway, I’m not an economist. I can handle supply and demand, elasticity and that kind of stuff. The macro stuff is beyond me. That said, this new bipartisan economic stimulus bill doesn’t make a lot of sense to me.

From the Washington Post:

“Under the deal, nearly everyone who earned a paycheck in 2007 would receive at least $300 from the Internal Revenue Service -- $103 billion in total. Most people would receive rebates of $600 each, or $1,200 per couple. Families with children would receive an additional payment of $300 per child. Workers who earned at least $3,000 last year -- but not enough to pay income taxes -- would be eligible for $300.

“Overall, 117 million families would receive rebate checks, including 35 million with earnings too low to have qualified under an earlier Bush proposal that limited checks to income tax payers. Rebates would be limited, however, to single taxpayers with adjusted gross income up to $75,000 -- up to $150,000 for couples. Above that, the benefit would phase out until hitting zero for individuals with adjusted income of about $87,000, $174,000 for couples.

“The money would be borrowed and would increase the federal deficit.”

The plan would also allow some accelerated depreciation to businesses and allow expensing rather than depreciation over time on some purchases by businesses.

First, and I hate calling $150 billion not much money, but it is in relative terms. Total personal income in the U.S. is in the neighborhood of just under $7,000,000,000,000,000. (From a chart at the Census Bureau website. Just under $28,000 a year for people over fifteen in 2006: there were about 223,000,000 million of such people. I don't think, but I don't know, that this includes corporation income.) That is whatever the word after trillion is. OK, I looked it up, $7 quadrillion. Now, not every penny of the money made is spent, and I can’t find a source for the money spent each year; but, let’s assume only $1 quadrillion is spent. $150 billion is only .00015 of a quadrillion dollars. And, we aren't including foreign spending. How much of an economic stimulus is that? (Don’t attack my math, it may be wrong; but, whatever the right numbers are, the package is a very, very, very small part of the total money spent in the country in a year).

Second, a lot of the rebates won’t be spent. If you are making in the top range of say $100,000 to $174,000, you aren’t going to go out and spend an extra few hundred to few thousand dollars just because you got a rebate. You’ll spend what you planned on spending. The rebates at this level are not an economic stimulus.

Third, this is borrowed money. To do not much, other than to serve as campaign fodder for the pols, we’ll add to the deficit.

Remember, I told you so; and I got an A a long time ago.

Daniel Shorr on NPR this morning likened the economic impact of the rebates to a cookie. You tell your friend you have cancer. He says "that's terrible, here, have a cookie, you'll feel better."

13 comments:

Jeni said...

Microeconomics is the ONLY college class I got a D in - a big fat "D" -and it forced me to change my major since microeconomics was a required course in the major I had wanted to pursue, had to have a "C" or better and I knew taking the class over was not going to result in my earning even a measly "C" - so change it was.
Now, with that in mind, it does make me feel better, knowing you got an "A" in that course and you and I both see something strange about borrowing that much money to hand out to folks as an attempt to stimulate the economy. I just don't follow economists logic at all, not at all. Didn't then, don't now and probably never will understand that, I suppose.

dr sardonicus said...

A lawyer, an economist, and a rabbi walked into a bar...

(...damn, I forgot the rest of the joke...)

Anyway, here's how the books get balanced.

Dave said...

Jeni, all you need from the class is a healthy sense of "smell test."

Doc, unfortunately you are right. Ah for the days of "Coca Cola Imperialism." For the rest of you, the link in Doc's comment takes you to a sort of portal. Go to the upper right side of the page and click "enter Salon" to read about who is funding our new economic package.

Kathleen said...

Amen, Dave. I was an econ major, but micro and I didn't really get along. I prefer macro. Anyway, I thought the exact same thing. How on earth can increasing our deficit and borrowing more from China help us at all??? Unbelievably stupid.

Anonymous said...

I have never taken an economics course but even I know this is just stupid. My father, who had only a high school education but worked in a bank all his life, always said "if you don't have the money to pay for it - you can't have it". The government should stop spending our money earmarks and entitlements that benefit only a few then talk about cutting taxes.

fermicat said...

I agree it is a stupid package that won't help. People who are truly in trouble are likely to use the windfall to dig out just a little - they will pay back money they borrowed and this won't help the economy much, if any. People like my husband and me will save the extra money, not spend it. We don't spend every dollar we make now, and getting a little extra isn't going to change that.

This crisis has happened because of the over-reliance on borrowing to maintain our economy, and I don't see an easy fix for that. Going into debt to establish a certain lifestyle is inherently unsustainable. Sooner or later the house of cards will fall, and it seems that this is happening to a lot of people right now. Unfortunately, it isn't just individuals financing their existence by continuously taking on more and more debt -- our government has been doing the same for years. It needs to stop.

Dave said...

The sad and scary thing, given all of your comments, is that our political "leaders" are falling over themselves to buy us off. "Here constituant, see what I got for you?"

The Exception said...

the one thing that I have not heard mentioned is the psychological benefit that such a package might offer? When the news is bad and predicting very bad - markets are falling world wide - is it possible that the true purpose of the package is to increase consumer confidence?

I don't like the package. I think many will save, many will use it to add to a mortgage payment or something, and those who are in trouble will most likely be those that go out and buy something that they can't afford.

The economy is in trouble because of poor decisions made by lenders and consumers and a war that we never could afford...government involvement is not going to make the situation better - perhaps make it worse?

Kathleen said...

I realise this is an extremely unpopular opinion, especially with our present administration, but how about corporations that make millions of dollars NOT get special tax break and pay MORE than I pay in taxes. I don't mind paying my fair share of taxes (yes, I'm a Democrat), I do mind that I pay more than oil companies who are making record profits. We need to close all the corporate loopholes in the tax code, so the middle class does NOT pay more in taxes than the rich (people and corporations).

Dave said...

Kat, I've got to part ways with you here.

Mobil/Exxon were it to write a check to the IRS five hundred billion dollars, does not pay a penny in taxes. You and I do. Each gallon of gas we buy in pure federal and state taxes runs us about fifty cents in taxes (depending on what state you live in). E/M figures out what the oil, the refining and the distribution costs, adds overhead and some profit (admittedly a pretty good profit) and then adds what it is going to have to pay in taxes. You then pay the fifty cents or so AND M/E's taxes. It gets worse. When M/E buys something, it pays the other company's taxes which it has added on to its cost of goods sold and overhead. Add all those up and that's about 22%.

The best thing that could happen to our tax structure is a statute that exempted non-people (corporations) from paying taxes. Then people would know what the taxes that are paid actually cost them.

Kathleen said...

If I understood that correctly, E/M passes their taxes onto the consumer, so we're paying federal and state taxes along with what would be E/M's share as well???

And you don't think corporate loopholes need to be closed? What am I missing?

Dave said...

I'll put it a different way. Gas here is a bit under $3.00 a gallon. Let's add a $3.00 a gallon surcharge for E/M and it's ilk's windfall profits and to reduce consumption and just for the hell of it.

E/M won't pay a penny of the new tax or the old tax. You and I will. E/M collects and remits the taxes we pay that are built into prices. By having tax layers we obscure what we are actually paying.

Another problem with corporate tax is that it makes us less competitive. A company in an EU nation (other than one I think, and I can't remember which) pays no VAT on profits gained by its goods and services that are exported. That makes that company's prices lower than it's American competitor. Guess what, companies move to where they make more money and our economy suffers.

Any miraculous conversion on the way here?

Kathleen said...

Hmmm, so what you're saying is that it's essentially a Catch-22. And we obviously can't, as a nation, band together to buy only products built here since Wal-Mart sells nothing from here (that I know of) and people still shop there.