Friday, February 13, 2009

All this high stepping and baton twirling....

...for what?

Public enthusiasm continues to be constrained for this Stimulus Bill. In fact consumer confidence has plumeted. And people expect the Depression to last at least five more years.


Could it be that this Stimulus simply doesn't acknowledge the dire straits so many households are facing. All it provides is (perhaps) $15 a week this year and $7.50 a week next year to workers who can't qualify for the AMT "fix".

But AMT "fix" beneficiaries will receive anywhere from $500 to $5,000 (in addition to the $400 in payroll witholding reduction); first time homebuyers, $8,000; $2,500 tax credit for college tuition and expenses.

The Earned Income Tax Credit will be increased $600 in 2010.

There is no incentive, at all, for working class people to spend significantly; in fact, given the way this stimulus is set up, all the incentive is concentrated at the high end, primarily in corporate board rooms, secondarily in the households of the upper-middle class. The working class, if they are smart, will hold on to every dime they can get their hands on for absolutely as long as they can.

Combine that with the bailout of the Financiers, to the tune of several trillion dollars, mostly to pay off their gambling losses, and we have a perfect storm of -- continued decline, right into Depression.

How is it that the Stimulus Managers completely missed the plight of the working class and the lower middle class? How could they be so blind?

Much cleverer people than me point out that they didn't miss anything. They don't want to give any kind of spending support to the working class right now, they don't want average household spending to pick up for the most part, because it would be inflationary.

Furthermore, macroeconomists insist that substantial payments to households do not spur spending; instead, such households typically pay down debt or squirrel the money away in savings. The brainiacs use the experience of last year's stimulus payments as examples.

Only their example is flawed. At least in my own household, I can tell you exactly what happened to the $1,500 we got in stimulus funds.

$300 went to pay debt (primarily incurred to cover previous house and car emergencies -- some of which were documented on this blog.)

$1,200 (and quite a bit more) went to pay increased expenses, including doubled cost of gasoline, higher insurance premiums, and 30% - 50% higher food costs.

In other words, there was inflation last year, substantial inflation of gasoline and food prices -- basics for most households -- and people had to pay the higher prices, they had no choice. As it happens, they had some money to do it with.

Nothing was added to savings in our household; more than $3,000 net was taken from savings last year to pay higher expenses, despite our efforts to economise, and we've still got a substantial debt load -- though not as high as many people's because we have always lived rather frugally.

Yet macroeconomists will insist -- no matter what -- that the $15 a week per worker starting in July will have the greatest simulative effect of any of the other tax breaks in the stimulus bill because workers will spend the money immediately without thinking.

The unemployment insurance extensions, the food stamp supplements, the welfare supplements, the state stablilization funding, the educational funding, and some of the other direct program support in the stimulus will all help individuals -- as they fall through the holes in the shredded safety net -- and that's a good thing for those who have the opportunity to make use of those things.

The spending and infrastructure programs in the stimulus will help the economy keep going at a reduced but potentially sustainable level (cf: Japan) for some time, barring the unforseen (Israel attacks Iran, an asteroid collides with Colorado, etc.)

But there will be nothing substantive to encourage spending by households, at least not any time soon, so as to at least try to curb the inflationary pressure increased spending would have at this time. Also, nothing substantive will be done to relieve household debt loads, at least not in the near term.

And many more trillions are still going to be paid to the banks and the Wall Street swindlers.

So despite all the high stepping and baton twirling by the administration and the Congress over the Wonderful Stimulus they've managed to craft and pass, the People are not buying it.

Most of them won't see or feel any benefit.

Nothing to cheer about.

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