Thursday, January 24, 2008
Free Money
Here is an article describing the basics of the just-announced agreement on fiscal stimulus in the U.S. One thing you'll notice is that in addition to the rebate checks to individuals, there will likely be several provisions meant to lower taxes on businesses. An interesting question regarding this is: do businesses and individuals have different marginal propensities to consume? And if they do, how does this affect the power of this stimulus bill?
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This article talks about how the new tax rebate is supossed to boost the economy and help the U.S. drive away a recession. According the article, " the US House of Representatives and the Bush administration reached an agreement on a $150bn fiscal stimulas package."
These packages include cheques to be sent out to some 117 million Americans between the amounts of $300 and $1200 as long as the individual makes less than $75,000 a year and couples earning more than $150,000 a year will also be phased out.
Trying to stay out of a recession is a big deal and the government wants to act quickly. They are hopeing to start sending cheques as early a May 2008. Although some feel it may have come too late.
From what I have gathered, the government wants these people to spend the money as quickly as possible that way we get more money into circulation to help companies and keep recession away. An increase in our GDP would not be a bad thing. Of course there will also be the people who decide to save the money and not spend it.
I found this article to be enlightening to what is going to be going on in the near future. Of course nothing is quite set in stone yet, and there could be some changes once it goes through the Senate. But I would surely accept a check from the government free of tax.
In this article it is talk about how a rebate of $150bn can help stimulate the economy not to fall more into recession and to people who will spend or higher MPC like people earning less than “$75,000 and couples $150,000”. Further more, there are also plans of increasing the unemployment benefits to help the economy not fall into stagflation.
Still there is some debate if is not too late to be doing this, but as long as it stimulates the economy in a good way, it’s never too late. First if people with a higher MPC will spend that money helping the economy since not everybody will just take that check and just save it as the articles mentions it.
As far as raising the GDP for people to spend more is a must at this moment since the higher our GDP per person, the better our economy will be as far as our assets. Bringing the stimulus package will help with that since it will eventually help raise the Interest rates and bringing the economy to a better position with this recession situation.
This article discusses the intended effect of the tax rebate offered by Congress and the President. The hopeful consequence of this rebate will be a bolstering of the economy to ward off the onset of a recession. The sum of the tax cut will total around $150 billion and will primarily go out to private citizens, but will also include incentives for new businesses. The stimulus checks will be sent to 117 million working Americans and will be worth $300 to $1200 for family incomes less than $75k per year.
The government feels the need to act because in a time of crisis, it is better to be seen as attempting something productive, even though it is ultimately pointless. The object of fiscal policy in the form of tax reductions is to increase the consumption of individuals and therefore shift aggregate demand to the right and hope that the increased production will be enough before aggregate supply reacts and prices increase. The problem with this is that the market reacts immediately and the tax rebate will cause the dollar to devalue further. This will in turn cause a drop in net exports exactly equal to the increase in consumption—we’ll break even.
My reaction to this article is two-fold. On one hand I feel general apathy with a bit of disdain. The article details futile attempts to increase output of the economy while the main goal of doing such is public appeasement, unless of course there is prevalent ignorance of economics in Congress, which is also highly probable. On the other hand, I’m not an exporter, but I AM a taxpayer and am happy to have a little more of my money back.
James Politi and Jeremy Grant are discussing the fiscal stimulus package that was passed by representatives as well as President Bush to avoid a recession. The article breaks down how people dependent on income will receive between 300 and 1,200 hundred dollars. Along with the stimulus package there will be tax breaks for large companies and small businesses. The authors follow by adding that this shows the need for action due to how fast the bill was passed by a bipartisan group. However, changes may still be made to the bill due to the fact that it has to get through the Senate still, but the writers of the bill are sure that minimal changes will be made. Hank Paulson, Treasury secretary has said that payments should start being sent sometime in early May.
With the tax breaks and government purchases increasing, this should increase output. Since the Fed had cut interest rates a number of times, it too should increase output. In theory, according the IS/LM model, both the actions of the Fed and the government should push the economy out of recession. However, it will all depend on how consumers and businesses react to receiving the checks and tax breaks. If businesses are not investing and consumers are not spending like the White House is hoping then it may be a problem.
Since the checks will be mailed out soon, I am curious to see what will be the outcome. If people decide to save the majority of their check or use it to pay outstanding debt, then the economy may not get out of the recession or the check just might be considered free money since there is a possibility of getting out of the recession without the money/tax rebates. The article was informative but I have heard most of it and continue to since it’s talked about on the news quite often.
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