Why the Stimulus Package Won't Work

Likely Reich's views are not going to knock your socks off, but they are sound and to the point, which is why I like to post them--and he has given his approval to post them on ePm with appropriate attribution. Too often we are picking over the threads of campaign rhetoric and forget that people like Robert Reich who have held important cabinet posts--and served with integrity--under the Clinton admin. are available to guide the next Democratic dministration.

To check in with Reich, here is the link.

The Real Recession Problem: Consumers Are at the End of Their Ropes

Perhaps the silliest part of an already silly stimulus bill is a provision giving corporations big tax deductions this year on the costs of new machinery, instead of spreading those deductions over several years, as is normally the case. The idea is to get businesses to invest in more machinery, which will stimulate the economy.

But accelerated depreciation, as it’s called, doesn’t work. Almost the same tax break was enacted in 2002 and studies show just about no increase in business investment as a result. Why? Because companies won’t invest in more machines when demand is dropping for the stuff the machines make. And right now, demand is dropping for just about everything.

This tax break exemplifies the illogic of what’s called supply-side economics. If you reduce the cost of investing, so the thinking goes, you’ll get more investment. What’s left out is the demand side of the equation. Without consumers who want to buy a product, there’s no point in making it, regardless of how many tax breaks go into it.

Which gets us to the real problem. Most consumers are at the end of their ropes and can’t buy more. Real incomes are no higher than they were in 2000, while food and energy and health care costs are all rising faster than inflation. And home values are dropping, which means an end to home equity loans and refinancing.

Most of what’s being earned in America is going to the richest 5 percent, but the rich devote a smaller percent of their earnings to buying things than the rest of us because, after all, they’re rich -- which means they already have most of what they want. Instead of buying, the rich invest most of their earnings wherever around the world they can get the highest return.

Add all this together and there’s just not enough consumer demand out there to keep the American economy going. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth. Supply-siders who want to cut taxes on corporations and the rich just don’t get it. Neither does most of official Washington.

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I enjoy reading Reich's posts on the economy.

I am concerned that Washington is behind the curve on this downturn and the depth of the problem. We need relief in the hands of those who spend as much of their disposable income as possible as quickly as possible.

n/t

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"I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country." - Thomas Jefferson

And are dealing with priorities, to get while the getting's still good.

Those not smart enough to learn how the game works should know the first rule is caveat emptor.

In modern language (the CNBC era), it's "Don't believe the hype" and those who are not responsible enough to have learned the rules of wise financial decision-making must have absorbed too much of the hype.

Without consumers who want to buy a product, there’s no point in making it, regardless of how many tax breaks go into it.

Thank God for currency exchange markets and the move to ease access through 'free trade agreements' with countries where the consumer is not tapped out yet.

Give us tax breaks and freer trade agreements, we know where to find demand. Or at least promising investments.

Quick, while the buck's still worth something, gimme that tax break now and I promise I'll spend some of it on cheap consumer imports!

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"I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country." - Thomas Jefferson

and referring mainly to the lobbyist-rich 'tax break movement' rather than to current news. Grover Norquist has to be working overtime these days.

So, that's to say I just heard the House is moving with their package and I have little information on its measures. I only have a good sense of who's pushing and pulling in the background.

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"I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country." - Thomas Jefferson

It seems to me that the best "stimulus" would be to ease the burden on the the not-so-well-off retired elderly who are being hard hit by inflated food and petroleum prices; the new batch of unemployed who will be running out of unemployment insurance (as opposed to long-term unemployed who ran out a while back--thought they might be included too); and people who are struggling because of reductions in food stamps, etc.

Of course I think this way because I believe they shouldn't suffer for this incredible mess; but it also seems obvious to me that they will be spending the money they get, which is what a stimulus package should stimulated. Right!!!

carol

Target the stimulus at those who will spend the money.

But that's not what they've done. They've targeted the credit card companies. That's who'll ultimately get the checks for goods already purchased.

It looks to me like a bail out of the credit card companies.

Top 10 issuers of general purpose credit cards:

1. Bank of America
2. JPMorgan Chase
3. Citigroup
4. American Express
5. Capital One
6. Discover Card
7. HSBC
8. Wash. Mutual
9. Wells Fargo
10. US Bancorp

I just got an e-mail from AARP mobilizing on behalf of seniors.

carol