I am not an economic genius. My grasp of world-wide fiscal issues is worse than tenuous. But certain things seem obvious: it’s probably better for people to be working and earning an income than not. This is why I’ve greatly enjoyed a post from Karl Smith and a follow-up from Matthew Yglesias (whose twitter handle @mattyglesias always scans to me as Matty Glesias, for some reason). Short, but read ’em.
My feeling on the matter of stimulus spending, as opposed to tax cuts, is this: let’s say you have a middle-class fellow. (Ignore for the moment that tax cuts, as designed by Republicans, usually benefit only the richest of Americans, completely ignoring the middle-class, who are expected to benefit from the “trickle down” of these excess dollars.) Let’s call him Marv Strawman. He’s doing okay right now, all things considering. He’s still got a nice job in IT, his wife’s working part time doing some clerical work at a nearby school. He’s got a little savings, but not as much as he’d hope, and he’s not adding to it because nobody at his company got raises this year, and he’s trying to help out his brother, whose carpet-cleaning business is slowly failing. He doesn’t have any credit card debt, luckily, because he’s pretty smart. Smart enough to know that big expenditures in his situation would be a bad idea, drawing down on an already meagre savings account. So while he’d like to get his out-dated bathroom remodeled, he can’t really swing it this year, and probably not the next.
(As I’m typing this, I realize I’m using a close cousin to the anecdotal evidence argument I talked about the other day. I never said I knew what I was talking about. Bear with me.)
Then, he finds out that the Federal Government, in all its wisdom, has decided to give a nice big tax cut, because while adding to the deficit with additional spending smacks of socialism, doing so to give money back to Americans is, well, American. He does his tax return and discovers that, sure enough, he saved about $600 this year. Now: as a smart guy, what is he to do with this money, knowing that the economy is still in tatters and nobody knows what tomorrow will hold? Does he get his old, but perfectly functioning, bathroom redone? Does he splurge on a nice new TV for his bedroom?
No. If he’s got any sense, he socks it away in his savings account and saves it for a rainy day. He is behaving perfectly rationally.
Now, the other option: the government keeps Mr. Strawman’s $600, along with a few billion dollars in income from the taxes of many other Americans. It then comes to Mr. Strawman’s town (Strawville; it’s actually named for the founder, a distant relative of Marv, something of which he’s inordinately proud) and hires up a bunch of people, including the younger Mr. Strawman, whose business finally collapsed into bankruptcy, to plant a new park in the center of town. It also renovates a local train station for the line leading to the Big City so commuters don’t have to sit on benches that smell strongly of hobo piss. Then it sends some grant money to the town Baptist church, which uses it to build a shelter for the hobos so they’ll stop hanging around the train station. It also pours some money into the police force, so they can rehire the 3 officers they laid off, and they can get back to rousting hobos and preventing kids from vandalizing the new park. And all of these working people get decent living wages and can afford to feed their families, and Marv Strawman takes the money he’d set aside to help his brother and buys a $600 TV for his bedroom. (And all of these people keep paying nice taxes back to the municipal, state, and federal governments.)
Doesn’t that sound like a more pleasant outcome than Mr. Strawman having six hundo in a savings account earning 1%?
