Wednesday, December 17, 2008

Free Money

So, yesterday the Federal Reserve cut interest rates to between zero percent and 0.25%. Wheeee. The government is giving away free money! Freeeee!!!!

This is the tenth time in 15 months Bernanke has cut interest rates.

What’s that definition of insanity again? Doing the same thing over and over again and expecting different results?

From CNN:
Despite the dramatic nature of the Fed's move, some economists questioned whether it will have much effect on the economy. They said the problem for consumers and businesses right now is not the cost of borrowing, but the availability of credit and the weaker economic fundamentals.

"Lowering rates to this level is purely a psychological move made to send the message that the Fed is committed to righting the sinking economic ship," said Rich Yamarone, director of economic research at Argus Research. He noted the previous rate cuts did little to stop home and auto sales from plunging.

Uh, yeah. I don’t know who these “psychological moves” are directed at but they certainly don’t make me feel any better. When the government starts giving banks free money I start to get that panicky feeling that maybe we’re in even worse trouble than they’re telling us.

My Wingnut Friend ® writes:

When is someone going to quit focusing on avoiding a Depression and instead focus on cutting taxes, limiting government, and letting the market work so that we will have a Surge instead?

No, it’s not a parody. There really are people who have learned nothing from the past eight years.

Remember that definition of insanity?

For the record, John really is a friend of mine. Other than having completely boneheaded ideas about public policy, politics, race relations, the women’s movement, the environment, religion, and just about everything else that matters, he’s actually a very nice guy. This means we end up talking about books a lot, which is fine since we are in a writer’s group together. He’s one of the most talented fiction writers I know, and I never understood how someone so smart could at the same time be so dumb.

But he’s not alone in his ideas. There are plenty of boneheaded folks around here who seem to think if only we’d implement more tax cuts and decrease government oversight to allow the free hand of the market to run rampant make everything peachy, all would be well. It’s a core value in Wingnuttia and while it’s been proven wrong time and again, some folks just won’t let it go. I can’t blame them: it’s been the core principle of the Republican Party for over 25 years, it would be sorta embarassing for them to come back now and say they had "found a flaw” or something.

Anyway, here’s something I pulled out of the memory hole:

• In 2008, taxes would be cut from 10 percent to zero percent on the first $6,000 dollars of taxable income for individual taxpayers and the first $12,000 of taxable income for couples. Taxpayers could receive rebates of up to $600 for individuals and $1,200 for couples.  A minimum of $300 per person and $600 per couple would be available to those with at least $3,000 of earned income.  This relief would be available to everyone with adjusted gross income less than $75,000 for singles and $150,000 for married couples filing jointly.  It will be phased out for taxpayers above those income thresholds.

• Everyone eligible for this relief would also receive an additional $300 per child.  For example, this would mean up to $1,800 of tax relief for an eligible couple with two children.

Epic fail of additional tax cuts! We all got our “economic stimulus” checks in the mail and the economy tanked anyway. Oh noes. So let’s give even more tax cuts on top of the ones Bush implemented in 2001 and 2003, maybe that will do something! Hey I know, maybe the government could just give away free money, let’s see if that helps!

Oh, wait.

As far back as 2003 some folks were saying that tax cuts at war time were the problem, not the solution:

Economic growth, though positive, has not been sufficient to generate jobs and prevent unemployment from rising. In fact, there are now more than two million fewer private sector jobs than at the start of the current recession. Overcapacity, corporate scandals, and uncertainty have and will continue to weigh down the economy.

The tax cut plan proposed by President Bush is not the answer to these problems. Regardless of how one views the specifics of the Bush plan, there is wide agreement that its purpose is a permanent change in the tax structure and not the creation of jobs and growth in the near-term.

The permanent dividend tax cut, in particular, is not credible as a short-term stimulus. As tax reform, the dividend tax cut is misdirected in that it targets individuals rather than corporations, is overly complex, and could be, but is not, part of a revenue-neutral tax reform effort.

Passing these tax cuts will worsen the long-term budget outlook, adding to the nation’s projected chronic deficits. This fiscal deterioration will reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure, and basic research. Moreover, the proposed tax cuts will generate further inequalities in after-tax income.

Well, pay no attention to the Nobel Laureates, what do they know?

I’m no economics whiz-bang but it seems to me the flaw here is one that’s been not just years in the making but decades in the making. I think it’s a little crazy that we have a consumption-based economy. That might have been well and good as the country raised its standard of living and we were buying things that we also manufactured here, but right now our consumption only benefits the people of China, India, Vietnam and Mexico. On top of which, we’ve reached a point where people pretty much have everything they need.

We should have seen this coming when everyone started building bigger and bigger homes -- twice and three times as large as the ones most of us grew up in. Let’s face it, these are consumption boxes. Bigger homes mean you need to buy more stuff. But when the economy gets tight you can live very comfortably in a smaller home and make do with your old stuff. Sooner or later this was going to catch up with us.

Instead of basing our economy on how much stuff people buy which they don’t need, how about basing the economy on creating jobs? On how many people are working? People need jobs, they don’t need new flat-screen TVs made in Taiwan.

We’ve been down a bumpy road for the past five years. The stock market has been a roller coaster ride for far longer than the past three months. I wonder if the local “dumbasses” who kept insisting we are not in a recession are ever going to admit the resot of us were right, now that the National Bureau of Economic Research says the recession actually began a year ago.

I think it’s time we stopped listening to people who have always been wrong and start listening to the folks who were right for a change. Our economy is FUBAR’d and it’s not going to get any better as long as we fail to recognize that the world has changed and old tactics like lowering interest rates and tax rebates are not going to work.