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Last fall I was talking to a friend who ran a computer
shop. We were both self-employed. Ed, I know you're as
inept a businessman as I am, wasting time on stuff we like
to do instead of what is most profitable. We've been
running our businesses into the ground for years. So
where's our bailout money?
Nowhere to be found, obviously, since we were too small to matter, and further, we were in the wrong businesses. America can get by without little magazines or ma-and-pa computer shops, but our poor, oppressed big-league bankers apparently deserve every dime of assistance we can give them.
Just how these subsidies keep regular people from losing their jobs and homes is something of a mystery to me, but there are a lot of things I don't understand.
From what I've read, though, there are two theories of economic stimulus.
There was the Reagan-era supply-side
or
trickle-down
economics, accompanied by the Laffer
Curve.
The argument behind the Curve was that if the income tax rate were zero, there would be no tax revenue. And if the rate were 100 percent, no one would bother working because all the proceeds would go to the government. Somewhere in between was a happy point that would maximize both personal income and governmental revenue.
There was a political contradiction, though. If this
process increased governmental revenues, then government
might pay down the deficit, thereby reducing the
availability of safe government bonds and treasury bills
for rich people to invest in. So they wouldn't be happy.
And if instead, government grew to use the increased
revenue, the drown it in a bathtub
crowd would be
irate.
Since those two differing factions are major components of the Republican Party, you can see why it might have been difficult to implement the Laffer Curve, rather than just talk about it.
As for the supply-side technique, taxes would be adjusted on the wealthy and big corporations, so that they would have more money to invest in productive enterprises. That would increase employment and eventually wages.
If the nation were short of capacity -- i.e., factories overloaded, mines running overtime, railroads jammed -- then increasing productive capacity makes sense as a form of economic stimulus.
But we seem to have plenty of unused capacity at the moment -- for example, the auto industry can build a lot more cars than it can sell. To deal with that, there are the theories of John Maynard Keynes.
In essence, he argued that a stimulus should increase demand, and the best way to do that is to funnel money to poor people because they'll spend it quickly. Thus there's more money in circulation, retailers see increased sales, factories increase production, etc.
As to the current stimulus package controversy, I've marveled at how our poor, oppressed Wall Street bankers complain that they can't live on $500,000 a year. Hey, for $500,000 a year, most of us would be glad to step in and help lose a few more billion.
My bartender daughter Columbine told me last week that
she had come up with a joke. She posted a sign on her back
bar: Try our new drink, the Bailout. You don't know
what's in it, and it's very expensive.
She figured it would be good for a few chuckles, and it was. But to her surprise, some people wanted to order a Bailout. Now she's trying to figure out the price and the ingredients -- sort of like Congress.
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