So, about those stimulus packages
The new administration plans a massive stimulus package, likely north of $500,000,000,000, maybe as much as $700 billion. Before we spend that money, let’s take a look at some previous efforts.
The Bush tax rebate of 2008: The chart in this article says it all. We got a spike in income, but no spike in spending. Why? Because most folks have homes or credit cards. That debt absorbed the check that the government sent. Milton Friedman said that long-term tax cuts were the best form of stimulus, because that allows consumers and businesses alike to plan new major investments.
The New Deal: two articles this week poke holes in the popular notion that FDR saved America. In truth, FDR prolonged the Great Depression. The NY Times’ Tyler Cowen points out that some of Roosevelt’s actions were productive. Expansionary money policy is cited aschief among those efforts by Christina Romer, one of Obama’s new appointments. But the labor policy that FDR passed artificially inflated wages, meaning that companies couldn’t afford to take on new employees. The new card check legislation has an eery echo of FDR’s labor missteps.
Worse, the government increased taxes at the same time they were trying to throw money at the economy. How do you get businesses to spend more while taking more from them? Fortunately, Obama is intimiating that he won’t raise taxes any time soon.
Two UCLA economists say the evidence shows that government intervention actually prolonged the Great Depression. Oh, many economists also say that the current level 2 myth, that WWII ended the Depression, is also false, according to the NY Times article linked above.