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Thread: CBO: Stimulus hurts economy in the long run

  1. #401
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    Re: CBO: Stimulus hurts economy in the long run

    Quote Originally Posted by AdamT View Post
    #391 is standard economic theory with respect to tax cuts and stimulus. I'm sure this isn't the first time you've heard it. For #397:
    These are ‘standard economic theory’?
    1. ….you can also boost demand by raising taxes on the rich and cutting taxes on the poor and middle class, for the simple reason that the poor and middle class tend to spend all or most of their income while the rich do not.
    2. That's why it makes sense, from an economic perspective, to finance payroll tax cuts with a tax hike on millionaires.

    Out of which economic book?


    Sorry but your link refers to a seasonal increase in credit and DEBIT cards. There is no definitive statistic on how much of which. As I’m sure you would agree the use of a debit card does not classify as credit.

    It is MY theory based on the price and availability of domestic products. Those on low incomes are typically trying to stretch their money hence favoring lower priced import products (cheap crap). Typically only moderate and high income persons can afford higher price and better quality domestic products (Cadillac’s vs. Chevys).

  2. #402
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    Re: CBO: Stimulus hurts economy in the long run

    Quote Originally Posted by Dickieboy View Post
    These are ‘standard economic theory’?
    1. ….you can also boost demand by raising taxes on the rich and cutting taxes on the poor and middle class, for the simple reason that the poor and middle class tend to spend all or most of their income while the rich do not.
    2. That's why it makes sense, from an economic perspective, to finance payroll tax cuts with a tax hike on millionaires.

    Out of which economic book?




    Sorry but your link refers to a seasonal increase in credit and DEBIT cards. There is no definitive statistic on how much of which. As I’m sure you would agree the use of a debit card does not classify as credit.

    It is MY theory based on the price and availability of domestic products. Those on low incomes are typically trying to stretch their money hence favoring lower priced import products (cheap crap). Typically only moderate and high income persons can afford higher price and better quality domestic products (Cadillac’s vs. Chevys).
    Yes, it's bog-standard economic analysis (not to mention common sense) to say that tax cuts for the rich are less stimulative than tax cuts for the poor, because the rich have a much higher savings rate and thus create less demand.

    Rich Americans Save Tax Cuts Instead of Spending, Moody's Says - Bloomberg

    Tax Cuts for the Middle Class and Poor STIMULATE The Economy, But Tax Cuts for the Wealthy HURT The Economy → Washingtons Blog



    As far as use of credit, you could also look at the personal savings rate which spiked after the financial meltdown and has since fallen substantially.

    Graph: Personal Saving Rate (PSAVERT) - FRED - St. Louis Fed

    Again, as to your theory, while it's interesting, I haven't seen any data to back it up. For example, I think that the wealthy tend to buy Mercedes, BWMs, Porsche's, Land Rovers, etc., more than they buy Cadillacs. Not to mention that both Cadillac and Chevy are US brands (?). You could argue it 20 different ways going one way or the other.
    Last edited by AdamT; 12-04-11 at 02:33 AM.

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    Re: CBO: Stimulus hurts economy in the long run

    Quote Originally Posted by AdamT View Post
    Yes, it's bog-standard economic analysis (not to mention common sense) to say that tax cuts for the rich are less stimulative than tax cuts for the poor, because the rich have a much higher savings rate and thus create less demand.
    Technically it is a standard ‘demand side economics’ theory as promoted by Keynes which is the crux of our disagreement. I believe (standard supply side theory) that the government should make efforts to increase the supply (output or production) of our economy. This is done by reducing taxes on the ‘suppliers’ (rich). The increase in production will both provide revenue to those who labor to produce and increase inventory/supply thus reducing the prices making products more affordable for the laborers. Since you appear to be entrenched in in demand side and I in supply side this appears to be the point at which we ‘agree to disagree’.

    As far as use of credit, you could also look at the personal savings rate which spiked after the financial meltdown and has since fallen substantially.
    Yes, I have seen the data trend and it distresses me some in that it appears we didn't learn much from the '00's. I believe that this credit spending is not substantive in both the short and long term. In the short term it artificially supports prices/economic growth, in the long term wealth is typically not created by CONSUMER debt.

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    Re: CBO: Stimulus hurts economy in the long run

    Quote Originally Posted by Dickieboy View Post
    Technically it is a standard ‘demand side economics’ theory as promoted by Keynes which is the crux of our disagreement. I believe (standard supply side theory) that the government should make efforts to increase the supply (output or production) of our economy. This is done by reducing taxes on the ‘suppliers’ (rich). The increase in production will both provide revenue to those who labor to produce and increase inventory/supply thus reducing the prices making products more affordable for the laborers. Since you appear to be entrenched in in demand side and I in supply side this appears to be the point at which we ‘agree to disagree’.



    Yes, I have seen the data trend and it distresses me some in that it appears we didn't learn much from the '00's. I believe that this credit spending is not substantive in both the short and long term. In the short term it artificially supports prices/economic growth, in the long term wealth is typically not created by CONSUMER debt.
    It doesn't make sense to classify oneself as a supply sider or a demand sider -- it isn't an either/or situation. There are supply side recesions, such as the one in the early 80s, and demand side recessions, such as the Great Recession. Different tools are required to address them.

    Bush's first Treasury Secretary, Paul O'Neill, new that in 2002 when he counseled against further tax cuts, saying:

    Mr. President, the Business Round Table of the country's leading CEOs says the focus should be on boosting consumption demand. Their warehouses are full. They need a boost in demand to clear away inventories. I'm not sure that a tax cut that benefits mostly wealthy investors, many of whom will just push these gains into savings, will do much for demand.

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