Stimulate Me
By: Paige Michael-Shetley
There has been much discussion about the use of the rebate package passed by Congress and signed by the President to stimulate the economy. B.J. recently covered the topic in his post, “Shiller vs. IMF,” laying out the arguments of those who favor using it and those who oppose it. As with most government initiatives, success is best measured by its unintended consequences:
President Bush Boosts Porn Industry With Economic Stimulus Plan, According to AIMRCo
NEW YORK, July 2 /PRNewswire-USNewswire/ — An unforeseen and surprising beneficiary of the Economic Stimulus Plan, a plan that George Bush contends will “boost our economy and encourage job creation,” has surfaced this week. An independent market-research firm, AIMRCo (Adult Internet Market Research Company), has discovered that many websites focused on adult or erotic material have experienced an upswing in sales in the recent weeks since checks have appeared in millions of Americans’ mailboxes across the country.
According to Kirk Mishkin, Head Research Consultant for AIMRCo, “Many of the sites we surveyed have reported 20-30% growth in membership rates since mid-May when the checks were first sent out, and typically the summer is a slow period for this market.
Jillian Fox, spokeswoman for LSGmodels.com, one of the sites reporting figures to AIMRCo, added, “In a June 15, 2008 survey to our members, thirty two percent of respondents referenced the recent stimulus package as part of their decision to either become a new member, or renew an existing membership.”
The economic stimulus plan, which includes a check for up to $600 for individuals and $1200 for married couples (among other benefits), is the product of an agreement between House leaders and the Bush Administration, focused on reviving a struggling economy in the wake of flagging economy.
Fox also added, “Getting more people to buy porn was probably the last thing Bush had on his mind when he came up with his ’stimulus package,’ but we’ll take it.”
One might reasonably question if the money we borrowed to pay for these “rebates” are going to spur capital investment and wealth creation. Or do these data suggest that we’re simply seeing “Congressmen Gone Wild”?
It appears our incumbent Representative and others in Congress who supported this legislation have succeeded in seeking a short-run economic boost to satisfy their constituents and facilitate their re-election while ignoring — and in fact exacerbating — very serious fundamental and long-run challenges.
Long-run economic growth results from a number of fundamental factors, which include the accumulation of physical capital (which is a function of personal saving in a healthy economy), human capital (which is a function of education), technological advancement, protection of property rights, and a strong legal system. The accumulation of high debt by government necessitates that resources in the future must be redistributed from investment in these productive forces to paying the bills we’re stacking up now, which crushes long-run economic growth.
Furthermore, the building of a large government debt has a number of negative by-products in an international economy. Absorbing private domestic saving necessitates reliance on foreign saving for domestic growth, as well as possibly on foreign purchasing of government bonds to finance deficit spending. When foreign investment decreases and/or leaves the country, which may occur for a number of reasons (market insecurity, a decline of the value of the dollar due to inflationary monetary policy or payment of foreign debt… either of these sound familiar?), then with it goes the source of growth. At this point, interest rates increase with high government borrowing, and the central bank is in a tough spot. It can either inflate to lower interest rates, which will hurt consumers, increase costs for businesses, and decrease returns of investors; or it can do nothing and allow high interest rates to lead to a recession. In any of these situations, economic growth is either stagnant or significanlty negative in the end. Thus, “stimulus” spending ultimately gives no real economic boost at all.
By creating more debt to “stimulate” the economy, Congress is attempting to rebalance a house of cards and delay its eventual collapse, even at the cost of potentially worsening it. We are delaying action on making hard choices that must be made today to shore up the country’s financial future and are making the these choices much harder for ourselves down the road. A $9.4 trillion national debt — with more hundred-billion deficits and skyrocketing interest payments expected down the road — and $53 trillion in present value of unfunded liabilities are absolutely nothing to ignore. These are phenomena that will wreck the economy much more powerfully than any near-term recession that may come, and they will not go away on their own nor by creating a significant amount of new debt.
Finally, we should note that the “stimulus packages” being in the form of rebates implies somehow a lessened burden of taxation for now to achieve a change in some economic variable. Real tax cuts are cuts in the burden of government on the taxpayers, and as such, they are long-term commitments that allow us and our communities to keep more of their resources.
Cutting taxes in the short-term and continuing deficit spending in no way represent a tax cut, as the government has one of two options to finance remaining spending. It can borrow and accumulate debt, which necessitates either a future tax increase to pay off the debt or a stalling of long-term growth and decline in opportunities available to the future. Or, the government can print money to finance deficits, which causes price inflation that squeezes consumers. As Milton Friedman would say (paraphrasing), “A tax cut is not a tax cut at all without a spending cut.”
Paige Michael-Shetley is the Volunteer Coordinator and Youth Coodinator for Lawson for Congress. He is a Senior at the University of North Carolina at Chapel Hill and is majoring in Economics and Math.
Tags: fiscal responsibility
July 18th, 2008 at 4:49 pm
i like the “congressmen run wild” phrase…
i think that the appeal of the “rebate checks” is purely emotional on the part of the recipients and purely manipulative on the part of the “givers.”
virtually all recipients [sorry to say] have NO CLUE where the money will actually come from [their taxes] and that they’re NOT being given a gift by the government, but a loan against future taxes and payments.
but again, it reminds me that we’re “getting the government that we deserve” based on “our” responses to such “gifts.”
talk about “buying votes.”
i must admit that i was VERY pleased when only Obama saw the “gas tax holiday” for the incredibly stupid fiscal chicanery that it was. i’m appalled that more media didn’t expose it as the disastrous idea that it was. [not surprised, just appalled.]
July 18th, 2008 at 6:21 pm
It’s called vote buying. Work hard guys. I wish I were in your district.
July 19th, 2008 at 4:30 am
Yes, it has pretty much always been about buying votes from people who don’t realize they are being robbed from one pocket while they put their “stimulus check” in the other.
We need for our schools to once again teach “civics”, and explain how the government and things like fiscal policy and the Federal Reserve work. My last child is now a high school senior and none of them ever heard a word about this in school. It will probably scare the heck out of them, and it should.
July 22nd, 2008 at 4:20 pm
An otherwise reasonable essay tainted by the the usual political incursion into innuendo about how people choose to spend money. Does BJ consider porn dealers of high enough authority to publish their economic analysis?
July 22nd, 2008 at 4:56 pm
Bob — The question of how people choose to spend money is important, especially since our federal government has been subsidizing and encouraging poor “capital allocation” decisions for quite some time now.
I’d frankly prefer that people read folks with more studied appreciation for our current predicament, such as Nouriel Roubini:
“For the last few decades over-investment in housing – the most unproductive form of accumulation of capital – has been heavily subsidized in 100 different ways in the U.S. government: tax benefits, tax-deductibility of interest on mortgages, use of the FHA, massive role of Fannie and Freddie, role of the Federal Home Loan Bank system, and a host of other legislative and regulatory measures.
The result was that the U.S. invested too much – especially in the last eight years – in building its stock of wasteful larger and larger homes and housing capital and of larger and larger private motor vehicles (whose effect on the productivity of labor is zero) and has not invested enough in the accumulation of productive physical capital (equipment, machinery, etc.) that leads to an increase in the productivity of labor and increases long run economic growth.”
http://www.rgemonitor.com/roubini-monitor/253033/american_un-beauty_the_crisis_of_the_suburbian_mcmansions_and_gas-guzzling_suvs_way_of_life
… but regardless of whom you read, is it any surprise that stimulating short-term consumer spending has failed to cure our economic ills?