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As is generally the case with economic news, I was
confused, so I called my favorite inside source:Ananias
Ziegler, media relations director of the Committee That
Really Runs America. He was cordial, though a bit put out
because neither major party had settled on a candidate yet,
so we might have to pay attention to your big square
fly-over state.
I told him I looked forward to attending a precinct caucus on Feb. 5 that might actually matter, and tried to move the conversation to the national economy.
There's a connection,
Ziegler said. If you
think the Republicans are hurting now, just think what
would happen if there's a full-blown recession this summer.
We have to prevent that.
Glad to hear you're looking after the financial
well-being of all Americans,
I responded. But I'm
not sure I understand what's going on. For instance, what's
this with the Federal Reserve cutting interest
rates?
That's a no-brainer,
Ziegler snorted. Lower
the rate, and it's easier for people to borrow money. So
they buy more stuff, and the economy improves.
But didn't we get into some of this mess because it
was too easy to borrow money with those sub-prime loans for
houses that are now worth less than the mortgages against
them, issued to borrowers who can't make the payments, and
now some big banks are having to write off billions in
assets? Isn't easing credit like throwing gasoline on a
fire?
Ziegler cleared his throat, then explained that Your
analogy is actually pretty good, except that the fire has
almost gone out. We need to rekindle it.
Something about this didn't sound right. Seems that I
just read somewhere that America has about the lowest
savings rate in the world. Wouldn't lower interest rates
further discourage saving?
Ziegler said I was being a Nervous Nelly, and shouldn't
worry. If interest rates go down, it means we pay less
to borrow money for the federal deficit, and that improves
the economy. Don't you get it?
I moved on, and asked about the proposed stimulus package that involved tax rebates of $800 for individuals and $1,600 for households -- even for people who weren't paying that much in income taxes.
Most of it should go to people in the lower economic
classes,
Ziegler said, because they'll need to spend
it right away, and that will get the economy moving
faster.
That sounded reasonable, except Years ago, I heard
about supply-side economics, where if you cut taxes for the
upper reaches, they would have more money to invest to make
a more productive economy. So I'm a little confused
here.
You shouldn't be,
Ziegler said. That was then,
this is now. Plus, this is an election year. It's always
good to put money in voters' pockets. And if we can have
more tax cuts, that will be even better. As you must
remember from the Laffer Curve, the lower the tax rates,
the more economic activity, and the more revenue for the
government.
But the more revenue,
I observed, the greater
the size of the government. Don't you people want to make
the government small enough to drown in a bathtub? So
shouldn't you support higher rates that would reduce
revenue?
Quillen, that may sound logical, but trust me, it
doesn't work that way.
But how does it work?
I asked. Sometimes you
say it's good for the rich to have more money, but
sometimes the poor should get money. We don't save enough,
but we should borrow more. You say lower tax rates increase
government revenue which increases the size of government,
but then you say government should be smaller. I'm really
confused.
Ziegler told me he had to go, but left with some
comfort. Just remember, a lot of people a lot smarter
than you have just lost billions of dollars. And thanks to
your economic position, that could never happen to
you.
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