Thursday, February 12, 2009

Stimulat?

I've received some early feedback indicating that links, to data, actually help me to make a point more effectively. Very well, I shall link things.
Today I woke up to discover this AP story about the passage of the rectified stimulus package. The article focuses on the tax breaks that were passed for lower and middle income Americans, namely the controversial rebate issued to even those who don't pay any income taxes. This $13 per week is insufficient.
Why is this tax break insufficient? It's too weak and it's too spread out. If you have followed my previous posts, you should be familiar with the concept that the crisis is extended by a lack of good information, namely, uncertainty, leading to cyclical reductions in periodic investment resulting in steadily declining capacity utilization (probably even follows an S curve in the end, why not).
This cycle is broken by a periodic engagement that results in greater than expected returns, essentially, people being surprised in an upwards direction rather than a downwards direction, and deciding to invest a greater amount in the next period (i.e. hire some people back, restart plants, etc). $13 per week for a large segment of the population is a lot of money when considered on the grand scale of the entire economy, but it's peanuts in the big pool of consumer spending, especially when spending against high margin goods is what we really need to stimulate the economy. Think of it this way. With that money, lots of people will be able to make an extra trip to the grocery store every two weeks, or purchase a new DVD every week, or something 'expensive' like a new coat every two months. Where are they going to spend this money? Walmart of course!
The problem with spending all of this money on goods which cost almost nothing is that... well... the goods cost almost nothing. They are all made in China or Mexico (as they would not be profitable to produce with American labor), they are not taxed on import, and then they are sold at places like Walmart which capture almost all of the profits. This is, in essence, an excellent stimulus for our trade partners (China, Mexico, Canada) but a terrible stimulus for us.
Now at least we know the price of the American electorate: $13 per week, plus (unemployment) benefits

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