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Mar 9, 2009

Cargo Cult Economics

Main Point and Conclusion
Spending and saving by individiuals is more "stimulative" than taxing and spending by government.

Lowering tax rates gives 3:1 return on GDP
A rate increase that raises $1 of tax kills $3 of GDP (jobs). A rate reduction increases GDP by $3 for each $1 not collected.

Last year's $78 billion tax rebate flopped
Martin Feldstein is an economics professor at Harvard. He says Obama's tax "rebates" won't work either.

Government Spending Divides, Does Not Multiply
Robert J. Barro is an economics professor at Harvard. He found that spending in World War II decreased GDP by 20% (an economic multiplier less than 1). Government spending actually killed GDP, even assuming that the spending itself was useful.

Spending did not end the Great Depression
Reduced spending and lowered tax rates did it.

Unemployment was double-digit throughout the whole New Deal. One year after the end of New Deal policies and the return of economic freedom, it was under 4% despite the return of a huge number of soldiers.

The Deadweight Loss of Taxes
Martin Feldstein in 1999 examined the effects of government spending and increasing tax rates.


Cargo Cult

Government spenders and casual observers see personal and business spending, and the associated employment and prosperity. They come to the wrong conclusion: that the spending created the prosperity.

Sad to say, this is a type of Cargo CultArticle at Wikipedia centered around money. John Maynard KeynesEO: Political Dictionary is the shaman of this cult.

The original 02/2006 - Smithsonian Magazine
A cargo cult continues in Vanuatu to this day. Villagers worship a mysterious American, John Frum. They believe he will return some day to give them the machinery and cargo which they remember from World War II.
cargo cults
were formed by some Pacific islanders in World War II. They saw the army build landing strips. Then, huge, silver, bird-gods arrived filled with valuable cargo. The islanders built their own nicely decorated clearings, hoping to attract these bird-gods.

The late physicist Richard P. Feynman described how such cults are produced Cargo Cult Science by the late physicist Richard Feynman, from his commencement address at CalTech in 1974. Search the text for "cargo cult".
  This is a great speech about ideas, curiosity, real science, fake science, and scientific honesty. All of his work is clear, entertaining, and well worth buying.
by greed and manipulation. The original cults and our new forms exist through simpleminded trust and a lack of curiosity and skepticism.


Keynes' followers are politicians who want to spend more money to increase their power. Or they are government employees, suppliers, and supplicants who want to be paid.

It is convenient and self-serving to say: "Keynes had a theory that spending creates wealth. Coincidentally, we want to spend! Let's try that theory again. If it didn't work before, it is because we spent too little. If  it didn't work for JapanEO: Spending did not help Japan, it is because they spent too little." This is good work if you can get it.

The current recession has produced cries for government action. The bad analysis is simple. We are becoming poor because not enough money is flowing around. Money has flown away, or it is hiding as savings. Prosperous people aren't spending enough, selfishly keeping their money to themselves. Poorer people don't have much money to spend, so we should give them more. Wealth will multiply when they spend it all.

So, the lack of consumption by people, and especially the wealthy, is causing the recession! In this view, we would all be better off if they bought more expensive cars, ate more caviar, and took more lavish vacations. They won't spend more, so we must take money from them and spend it for them. This is a crazy, economic defense of robbery.

"Your Honor, my client robbed these people, but in his defense, he spent it much more quickly than they would have. These people will work to replace the money in much less time than my client could earn it himself. This involuntary transaction is an efficient, cost effective way to inject money into the economy. My client's aggressive program of self-help has already eliminated some income inequality. It is a start."

Just after the 9/11/2001 attack on the World Trade Center, President Bush told the public that we would recover faster from the attack by going shopping to improve the economy. The press laughed at him, appropriately. Now, they agree with him.

Borrow, Spend, and Tax

President Obama and Congress have passed a Stimulus PackageHeritage.org economic research spending $816 billion ($816,000 million dollars). This is to be borrowed now as an increase in the national debt, and paid back later in higher taxes on "the rich".

$264 billion (32%) is new, immediate, means-tested welfare spending. This would be $6,700 for every officially poor person in the U.S., but it will be distributed to as many people as possible, poor and not poor. The implied increase in follow-on welfare spending will be an additional $523 billion over the next 10 years, for a total of $787 billion.

$264 billion will be distributed as checks ("refundable tax credits") to single people earning less than $75,000 per year ($150,000 for couples). Those people get a check regardless of taxes paid, making this a welfare program, not a reduction in tax-rates. The check is larger for those who paid less tax, or no tax, because the amount phases out (decreases) as income rises to the $75K or $150K limit.

The remaining $552 billion of the $816 billion will buy road repair, government jobs, teacher's salaries, and interesting business and research results from favored businesses. A favored business has given political support to congressmen and senators, or will provide jobs to unions in the politician's district or state.

The entire cost over 10 years from this one bill is $1,339 billion. That is $264 wellfare + $523 follow on wellfare + $552 in projects (not including likely cost overruns). This averages to a cost of $17,400 for each taxpaying household. Supposedly, this will be repaid by only the 2% wealthiest households.

Cynics say that Democratic politicians are buying votes by giving money to those who pay the least or zero tax. It is most efficient to take taxes from a few wealthy people to buy the votes of many poorer people.

The Obama team says that this spending will stimulate (or even shock) the economy into new life, creating wealth for everyone. Critics say that medical analogies should not drive important policies. The government does not apologize for taking the money of the well-off. The well-off have the money, and everyone else needs it.

Spend, Don't Save

The only catch, we are told, is that people may save the additional money or use it to pay debts, cancelling the wealth-multiplying effects. This was the explanation for the failure of the February 2008, $150 billion Stimulus bill. This bill delivered $78 billion in tax rebates in April-June 2008. The recipients spent $12 billion and saved or paid debts with the rest.

There was no effect on consumer spending above the $12 billion spent, no multiplier effect and no increase in consumer confidence. Maybe people understand the difference between a gift and a job. Keynesian economists explained that the recipients had failed their duty by not immediately spending everything they received. (Jump and return for the details)

Supposedly, the money cannot go to work if it is sitting in lounge chairs at the bank. The proposed solution is to give the money to the poor, or unemployed, or those making less than $75,000 (!) who will spend all of it, because they are not concerned about debts or saving.

It insults the recipients to expect they won't pay their debts or save. And, it is strange to think that spending money, in and of itself, is so important that it justifies taking money from taxpayers (on threat of punishment) and giving it to non-taxpayers so they can spend it. Not merely loans to get through a hard time, but outright gifts.

There is a fuzzy notion that taxpayers will benefit from other people spending their money. Supposedly, they will benefit so much that they will easily earn back more than what is taken from them. If this were true, there would already be spending clubs to take advantage of this amazing effect. We would not need government to do it. Imagine, everyone could buy a new refrigerator or dining table, and they would get back the money in a few months as bonuses above their usual salaries.

By the way, if the mere spending of money produced wealth, then: We should immediately license counterfeiters.EO: Let's counterfeit our way to wealth It would not matter how the money came into existence. The extra spending would produce that wealth.

If spending created wealth, it would be fairer and more immediate for the government to issue "spending orders", requiring taxpayers to show that they spent 10% more as their legal and patriotic duty, and to take this out of savings or investments, or even borrow the money. This would lack something from the viewpoint of the government. The politicians and their favored interests would not get to spend the money and collect the wealth it represents. They can't buy votes by ordering people to spend more of their own money.

Say that the government could give the money to people who would spend it all, with no damaging savings. There is then an inconvenient next problem: how to make those people buy things from other such people, so that the money continues to flow around. As it is, the first people go to a store or business and -zip- the money goes to a business owner and his employees, and then much of it into supposedly lazy savings.

Don't Spend, Save

Strangely, the government is lending money to banks, to increase savings, so that the banks can lend it to businesses to build the economy. They even want to lend money to more homeowners. The government also wants to invest in businesses, which is a form of saving. Investments are savings.

The government plans to take that money from the wealthiest taxpayers. These people currently save and invest in banks and in businesses, which supports employment, and many well-off taxpayers operate businesses and create jobs.

The government will remove some private investment and discourage small-business expansion, then it will attempt to replace that investment. This certainly harms the people who are taxed, but how does this benefit the public? I don't see that the government is a wiser investor than wealthy taxpayers and business owners.

If the government is so wise and productive, then why doesn't it earn a large profit that lowers what it needs to collect in taxes? After all of the years that the government has taxed and spent, why isn't it rich and paying us dividends? The government could prove its abilities by starting a profitable mutual fund which anyone could invest in voluntarily.

You might point to bridges and roads as being valuable products of government. They supply a non-cash dividend merely by being useful. But, the roads are paid for out of special gasoline taxes, and the government charges tolls when it builds a particularly useful bridge or road.

The government charges separately for anything that is directly useful to the public. The government uses general taxes to pay for the other things.

Spend or Save

So, which is it, Spend or Save?   The government says these are in conflict, and also says to do both. It is confused, saying anything that is convenient to the moment:

  • Spending is good

    There is too little spending. The previous stimulus plans didn't work because the people saved and invested most of it.

  • Saving and paying off debt is good

    We must support banks to lend to businesses. This saving and investment is vital to our prosperity and recovery. We are buying the bad debts of the banks so that they have the resources to lend money again.

    When you pay down your own debt, you free the lender to apply resources to additional lending. We are in a huge financial crisis because people are not paying their home mortgage loans.

Spend and Save

The government says spending creates jobs, but that saving, investing, and paying off debts leaves people out of work.

Actually, saving and investing make resources available to buy equipment and create and expand businesses. This creates jobs, makes work more productive and better paid, leads to less expensive products, and increases individual wealth.

Spending is a result of production and wealth, not the cause. Consumer spending gets attention because it is more easily measured than other money flows.

"Spending" is not the best way to analyze an economy, but we can take that view. We can see that saving, investing, and paying off debt are different type of spending. The money takes different paths; it doesn't disappear, and it all supports production and jobs.

Types of Spending

Consumer Spending: I buy a doughnut. This employs bakers and bakeries.

Saving: I loan money to a bank through a bank account or certificate of deposit. The banker immediately loans the money to businesses, which then spend to buy materials and equipment. One of those businesses may be a bakery or produce bakery ovens.

Paying off debt: I pay back money that I borrowed. Say I want to buy a nice TV, but I don't have $600 to do it. I could save the money in 6 months, but I want to enjoy the TV immediately, and I am willing to pay more to buy now.

A credit card company lends me $600, and I spend it on the TV. I will pay back about $110 per month for 6 months, $660 in total, $60 in interest above the borrowed amount. I think that is a reasonable extra cost to be able to use the TV immediately, rather than waiting to save the entire amount first.

My repayments of debt don't go on vacation in the hands of the lender. He will lend that money to other people, and the $60 of interest pays the people who invested with the lender and work for the lender. My repayment of debt supports further consumer spending.

Investing: I buy shares in a company or partnership. The company spends the money to buy equipment, establish its operation, and pay employees until it is profitable. Some of those businesses may be new bakeries.

Buying shares in a company is usually a transfer of ownership from another shareholder. The company doesn't get that money; it goes to the seller of the shares. How does this help the company or the economy?
  • Owning shares is a type of saving. Dividends from shares provide income, and there is a chance that the share price will increase.
  • The seller will use the money to spend or invest in other things.
  • The share price establishes a value for the company. The company can use that value to borrow from banks or issue more shares to support expansion, to create jobs.
  • A purchase of company shares may be an original issue where the company gets the money directly for expansion.

Spending for a Reason

I might buy a doughnut to get through lunch. I might borrow and repay a debt to enjoy a TV through the winter. I might buy corporate shares to get through retirement. People work for me in all of these ways according to what I buy. I worked and created something of value to earn the money that I spend for their work.

If a large number of people stop buying doughnuts and save or invest instead, then doughnut makers may lose their jobs, to find other jobs at the newly supported companies. Or, they may sell doughnuts to the employees of the new or expanding companies. We can't know in advance.

I get to choose what I buy because I have already produced something of value and received money in exchange. I earned the right. No one has the moral authority to tell me that I must buy doughnuts instead of TV's or investments. I worked to earn my money, and I want the benefit of that value. The purpose of an "economy" is to serve the individuals of the society, not to create economic statistics that meet some particular theory.

The strangest part of Keynesian economics, the economic theory of Obama and his team, is to regard spending as dynamic and saving as sleepy. In fact, the immediate difference is only what is produced, doughnuts or machinery. There are current jobs in both activities. Further, saving directly supports the growth of businesses, which make productive jobs and affordable consumer goods possible.

Spending promotes growth and efficiency in a slower way than saving. A company that sees a strong demand for its product will save part of its profits. It will use these savings to buy equipment and grow larger, to employ and produce more.

A company can save over time to buy equipment, like saving for a TV. Or, it can borrow and use investments from others who have already saved, like borrowing on a credit card to buy a TV. In either case, saving must be done first to pay for expansion of the business and to support more jobs.

Spending on Restaurants

Consider for example a restaurant called Eating Place. It is only half-full at lunch, selling half as many meals as it could with its tables and kitchen space. It has fired workers and may fire more, considering how few customers it has. Management is unsure about offering fancier food at a higher price, or simpler food at a lower price, or different food at the same price, or investing to change the furniture and interior design. They don't know what to do, and they don't have much money to do it.

The government has a plan to increase employment. It takes more tax from the well-off people in town and it gives it to the less well off. It announces that there is a stimulus so that businesses can plan to hire more workers.

Business goes up slightly at Eating Place. It seems that it was empty for a reason. People are not saving-up to eat there. Business goes up more at Better Place down the block, where people splurge a bit to enjoy their windfall.

Eating Place employs an extra waiter during the stimulus, then fires him after business drops again. Better Place hires two waiters during the stimulus, and fires them afterwards. Neither restaurant invests in new plans or expansion, because they know the stimulus is temporary.

The owners at Eating Place decide to redecorate and change their menu. They are disappointed to find that no one will invest with them. The investors mention that the government is raising taxes and they can't predict how eating patterns will change.

The investors think about expanding Best Place two blocks away to serve the prosperous government contractors who will want to eat out more often. They are unsure, because there also will be a decrease in business from the people who are paying more tax. The investors will wait and see.

Spending on Stimulus

Jobs increase slightly during a "stimulus", then decrease. Expected higher taxes and unpredictable government actions cause investment to slow or stop, until people can measure the new pattern of demand for restaurant meals and everything else.

The government can only spend and invest money that it takes from taxpayers who are already spending and investing. This is at most one-for-one, so there is no improvement in the economy. Worse, people don't want their money taken from them, so they spend more on avoiding taxes instead of investing more. Worse, the government changes the rules and threatens to continue changing the rules, making prediction harder or impossible and discouraging investment.

Obama's team justifies tax-and-spend by claiming that there is a 1.5 multiplier on government spending and investing, which they say creates more wealth and jobs than private activities. They say they will spend all of the money that they collect in tax, unlike the taxpayer who would save part of itNational Center for Policy Analysis.

[edited] Keynesians believe that every dollar of government spending increases GDP by more than a dollar due to the "multiplier effect." Keynesians concede that tax cuts are also stimulative. However, they claim the multiplier effect for tax cuts is smaller because some of the tax reduction is saved (!) rather than spent on consumption.

That isn't a "multiplier". They are only claiming to spend more of what they collect than the taxpayer would. But, "spending" is not better than "saving" for supporting jobs; in fact, saving is better. They are only measuring consumer spending, so they think consumer spending is everything.

The spending and the saving of taxpayers is just as "stimulative" as when the government takes the money and spends it. Politicians make a shameful, distorted argument for raising taxes so that they and their supporters can benefit from the money. This is a crazy, economic defense of robbery.

From the National Center for Policy Analysis:

[edited] Contrary to Keynesian theory, tax reductions appear to have a greater multiplier effect on GDP, consumption, and investment than spending. Christina Romer is chairman of the Council of Economic Advisers. She and David Romer found that $1 of tax cuts raises GDP by about $3. The incentive effects of reduced tax rates explain this result.

GDP is "Gross Domestic Production", the total production of the United States. Greater GDP translates roughly to more jobs. Taken another way, $1 of increased tax collected through higher tax rates causes a $3 reduction in GDP, killing jobs.

The incentive is to keep more money after-tax. The effects are to increase the investment of time and money by imaginative and productive people. The "multiplier" from lower tax rates is that entrepreneurs will find more productive ways to employ more people. Their success produces a permanent increase in prosperity for the employees and the owners, and lower prices or better products for their customers.

(Return to beginning)

Rules and Taxes

A threat by government, new rules or higher tax rates, threatens the incentive to produce low-profit products and to develop new products. Higher after-tax profits drive a demand for more workers. The threat of lower profits causes employers to lay off workers to avoid losses.

Losses are discovered in a time of crisis, and there is suddenly less wealth to trade, invest, and risk. The government should do less to disrupt the economy so that investors and workers can adjust to meet changing demand. The government has a long history of interfering with this adjustment. Private enterprise and a free market has a history of being successful.

People cry for the government to do "something" in a time of crisis. Doing "nothing" means not threatening the new relationships and risks that people must arrange to meet the new challenges. The government didn't create the economy and it can't directly intervene to "fix" the economy. The entrepreneurs and businesspeople of the society are not in the government. This explains why large-scale government interventions decrease employment, destroy efficiency, and make crises worse.

The problem is not to fix a broken part in the economic machine. The problem is to rebuild part of that machine to produce different products in different amounts. Only the entrepreneurs and managers of the free economy have the knowledge and incentive to do that well.

Cargo Cult Results

We observe that the Cargo Cult islanders have built a few clearings, each one larger and more decorated than the last. But, no bird-gods have visited or even come close. Nothing much has changed, but they have less food because the people of the village have no time to tend the sweet potatoes. They are busy building clearings.

The leaders call a tribal council. They discuss the anger of the villagers and decide that it will not go well for them if they do not succeed. They decide to build a gigantic clearing more wonderful than any so far. That surely will work, according to their deepest religious belief, and they will become legends in their tribe. They are old, and do not want to give up their honor and leadership.

So, tell me again. What is the benefit from stimulus spending taken as increased taxes from investors and businessmen? Where is the supporting data? What was the effect from recent, smaller trials, and in other countries? Why does Obama's team say that it will work this time, but only if it is gigantic?


The Tax Rebate Was a Flop,
Obama's Stimulus Plan Won't Work Either

August 6, 2008 - By Martin Feldstein, chairman of the Council of Economic Advisers under President Reagan, a professor at Harvard, and contributor to The Wall Street Journal.

He discusses the Economic Stimulus Act of 2008Wikipedia. Part of the plan was to manipulate the psychology of consumer confidence.

[edited] Those of us who supported this spending package reasoned that the program would boost consumer confidence as well as available cash. We hoped the combination would cause households to spend a substantial fraction of the rebate dollars, leading to more production and employment.

An optimistic and influential study by economists at the Brookings Institution projected that each dollar of revenue loss would increase real GDP by more than a dollar if households spent at least 50 cents of every rebate dollar.

[ This assumed that every $1 spent would increase GDP by $2, the magic multiplier. Note that no mention of this multiplier is made again. Why didn't it apply to the money actually spent, and also to the savings? ]

Tax rebates of $78 billion arrived in April-June 2008. The GDP figures are in, and the level of consumer outlays only rose by an extra $12 billion, or 15% of the refunded taxes. The rest went into savings, including the paydown of personal debt.

The rebates added $78 billion to the permanent national debt. This experience confirms earlier studies showing that one-time tax rebates are not a cost-effective way to increase economic activity.


The government Is a Bad Investor and Spender

Investing requires a good outcome from careful organization and planning, which is measurable by profit. The government rarely makes a profit, and the bureaucracy wastes much money proving that it made good decisions, regardless of the money lost.

Below, Mr. Barro estimates that government military spending in World War II resulted in $80 in GDP (production) as a result of each $100 spent. The $100 was GDP by definition. There was an associated loss of $20 in other production because of the disruptive effects of that government spending.

This was a cost of war. There is no reason to bear this cost in a time of peace, except for the most vital of public needs.

Government Spending Is No Free Lunch
by Robert J. Barro, economics professor at Harvard University and a senior fellow at Stanford University's Hoover Institution.

[edited] A particularly good case to examine is the massive expansion of U.S. defense expenditures during World War II. The usual Keynesian view is that World War II spending increases provided the stimulus that finally got us out of the Great Depression. I think that most macroeconomists would regard this case as a fair one for seeing whether a large multiplier ever exists.

I have estimated that World War II raised US defense expenditures by $540 billion (in 1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 80% (430/540).

Put another way, the war lowered components of GDP aside from military purchases. The largest declines were in private investment, non-military government purchases, and net exports. Personal consumer spending changed little. Wartime production siphoned off resources from other economic uses, so there was a decrease rather than a multiplier.

This analysis shows that war spending did not bring the U.S. out of depression. If anything, war spending suppressed GDP and employment.

FDR's Policies Prolonged the Depression
08/10/2004 - UCLA Newsroom By Meg Sullivan

[edited] UCLA economists Harold L. Cole and Lee E. Ohanian conclude that New Deal policies prevented economic recovery for seven years.

Roosevelt's policies kept wages 25% higher than they naturally would have been, for three years in 11 key industries. But, unemployment also was 25% higher. Gains in productivity at the time should have produced higher employment at lower wages.

Ohanian: "Why the Great Depression lasted so long had been a mystery. We worried about what conditions might produce another 10-15 year economic slump. We found that a relapse isn't likely, unless lawmakers gum up a recovery with ill-conceived stimulus policies."

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

Spending did not end the Great Depression
Reduced spending and lowered tax rates did it.
04/2010 - Planet Yelnick

[edited] What happened in 1945 at the end of WWII? FDR was convinced the only way to employ the 12 million returning soldiers was another New Deal program, but he died before he could impose his plan. The new President Truman proposed it, along with national healthcare.

Both the Congress and Senate had Democratic majorities. They said "No" to the whole New Deal revival: no federal program for health care, no full-employment act, only limited federal housing, and no increase in minimum wage or Social Security benefits.

Instead, Congress reduced taxes across the board. Top marginal corporate tax rates effectively went from 90% to 38% after 1945.

By the late 1940s, a revived economy was generating more annual federal revenue than the U.S. had received during the higher tax rates of the war years. Price controls ended by the end of 1946. The U.S. began running budget surpluses.

Unemployment was double-digit throughout the whole New Deal. One year after the end of New Deal policies and the return of economic freedom, it was under 4% despite the return of a huge number of soldiers.

The Deadweight Loss of Taxes
12/29/08 - EasyOpinions by Andrew Garland

The term "deadweight loss" refers to what is lost or never produced because of some policy. A higher income tax rate produces responses that decrease investment and production (jobs).

The primary effect is to remove money from individuals who would invest it more efficiently than the government. People will also work less, earn less, and pay less tax, if they don't think the extra money they could make is worth the extra hours or risk.

The secondary effect is to give investments a lower rate of return after tax, so investors tolerate less risk and invest more in tax free bonds and legal advice to avoid taxes. This also lowers investment in new activities and reduces opportunities for better paying jobs.

In November 1999, Martin S. Feldstein was the George F. Baker Professor of Economics at Harvard University and former President of the US National Bureau of Economic Research. He investigated the current effects of income tax rates on the economy.

Tax Avoidance And The Deadweight Loss Of The Income Tax

[edited] Traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on compensation and consumption [jobs]. The full deadweight loss is easily calculated to be as much as 30% of total revenue.

The deadweight loss caused by increasing tax rates above current levels may exceed $2 per $1 of revenue increase.

I will restate this. Government activities and transfer payments had better be useful to the society, because economic output has already been lowered by 30% of the taxes currently collected. And further, $2 worth of production (jobs) will be destroyed for every additional $1 collected through increased tax rates.

This is a severe loss, because there is no "stimulus" from that "extra" $1 in government spending. That $1 would have been invested or spent anyway. Taxes only move goods around from some people to other people, at great expense.

More About Deadweight Loss
10/13/10 - Cato Institute by Christopher J. Conover

[edited]:  When the federal government takes an additional dollar from taxpayers, the actual cost to society is generally $1.44. The additional $.44 is the deadweight loss of taxation. When Congress shifts a dollar from Peter to Paul, it leaves society $.44 poorer. Martin Feldstein estimates $1.65 poorer.

University of Chicago economist Harald Uhlig estimates that each dollar of federal borrowing (deficit spending) ultimately costs our society $4.40.

Stimulus Package Unveiled
01/16/09 - Online.WSJ
by N.Bendavid, E.Williamson, and S.Reddy

A review of the details in the Stimulus Package.

Details of the two-year package, which calls for $550 billion in new spending and $275 billion in tax relief, will likely change as the bill works its way through Congress. But the document provides the first blueprint of how President-elect Barack Obama and congressional Democrats plan to fight the historic economic downturn, which has already wiped out 2.6 million jobs.

Welfare Spendathon: House Stimulus Bill Will Cost Taxpayers $787 Billion in New Welfare Spending
02/06/09 - Heritage.org by Robert E. Rector

A review of the welfare in the Stimulus Package and likely hidden costs.

The recently passed U.S. House of Representatives stimulus bill contains $816 billion in new spending and tax cuts. Of this sum, $264 billion (32 percent) is new means-tested welfare spending. This represents about $6,700 in new welfare spending for every poor person in the U.S.

But this welfare spending is only the tip of the iceberg. The bill sets in motion another $523 billion in new welfare spending that is hidden by budgetary gimmicks. If the bill is enacted, the total 10-year extra welfare cost is likely to be $787 billion.

See Also

"Keynesian Economics" in The Political Dictionary
The political meanings of common terms. (Sarcasm Warning)

The Department of GDP
You can spend, or government will do it for you.

The Myth of the Economic Multiplier
You don't create $40 in wealth by paying $10 to mow your lawn, and government spending doesn't multiply either.

A Short Argument Against Stimulus
Spending isn't so stimulating when you know that it must be paid back.

The Deadweight Loss of Taxes
Collecting $1 in extra tax kills $2 in production.

We Guarantee It
Government guarantees invite reckless actions and cause economic crises, including the current home mortgage mess. A government guarantee is a blank check on your personal account. The government will make good on the guarantee with your resources, and cause the next even bigger recession.

The Government Bailout IS the Problem
See the Angry-Economist "The Failout" by Russ Nelson

The economy is bad because no one can predict the future with a big government elephant stomping around. The elephant can't solve the problem, and it scares away the elves who can solve the problem. The elves are small, but they are smart and there are a lot of them.

Russ Nelson: Credit is scarce because nobody wants to lend and nobody wants to buy. The Federal Government is threatening to borrow and spend a TRILLION dollars.

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