Relevant and even prescient commentary on news, politics and the economy.

What Fiscal Stimulus needs to look like

Fiscal stimulus? All sorts of numbers being tossed around, not sure where they are coming up with them from. But, if we are looking to drive a consumption based economy, it seems to me we have to get money into the hands of the most consumers on a regular basis.

Here is what has to be made up using year 2000 dollars. Keeping the same ratio of income for the top 1% as in 1962 (just seemed like a nice year to pick), the share per person for the bottom 99% (of total population) in 2005 goes from $24,515 which is just under 120% of poverty, 4 people ( 2007 tables) to $28,274 or just around 140%. It’s a $3759 increase. That’s the number to fix the problem as I see it. Or, one wage earner at $113,096/yr. Close to the top 1% number for 1962 of $114,711.

The $3759 times 4 (four people in a family) is $15,036. That’s health insurance of the non-high deductible type plus an extra $3000 for a retirement plan for this family of 4. If they are a young family, they could probably split that $3000 putting half in retirement and blowing the rest. Imagine 99% of the population in 2005 blowing $1500 just because they had it to spend. Real, in the hands, cash money.

Or look at it this way, we shifted the “risk” of health coverage and pension from the company to the employee, but not the $3759 per person that would need to go with it. You know, that old increased reward for increased risk meme of the free market capitalist system. Instead it went to the top 1% such that they have $681,370/yr/person. That’s $2,725,480/yr (family of 4 you know). And that is more than double the threshold for the top 0.1% excluding capital gains (Saez data). BTW, there were 2,969,720 people in the top 1%.

President’s Call For Fiscal Stimulus

If the CNN account of what George Bush said today is correct, he misses two important points about what would be the best fiscal stimulus package. The title says Bush called for “broad-based tax relief”. No surprise that he’d call for tax cuts and not spending increased but isn’t broad-based the opposite of targeted? And then there is:

The package must be big enough to make a difference in an economy as large as ours

Worrying about the size of the tax cut rather than its impact on aggregate demand strikes me as ignoring the principle that we should get the most bang for the buck. CNN also states that did not offer specifics yet – so I guess the devil will be in the details.

Then again, let’s have Bush speak for himself:

As Congress considers such a plan, there are certain principles that must guide its deliberations: This growth package must be big enough to make a difference in an economy as large and dynamic as ours – which means it should be about 1 percent of GDP. This growth package must be built on broad-based tax relief that will directly affect economic growth – and not the kind of spending projects that would have little immediate impact on our economy. This growth package must be temporary and take effect right away – so we can get help to our economy when it needs it most. And this growth package must not include any tax increases.

I guess CNN did get it right. Add to this the stupid comment made about why higher government spending should be off the table. Why are we ruled by such idiots!