My LTTE to the Augusta Chronicle (R/W rag...)

[ddeclue]

I wrote the following today in response to an editorial opinion piece in the Augusta Chronicle (Augusta, GA) that appeared over the holidays stating incorrectly that each dollar of tax rebate stimulus given out should be matched by a corresponding cut in government spending.

Their "opinion" is truly based in their ideological belief in a teeny tiny Federal government and a laissez-faire economy - this paper is very right wing - not out of any legitimate understanding of macroeconomics.

I wrote them the following - I doubt they'll print it but at least they know that someone has called B.S. on them and established that they are wrong and HOW...

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While visiting my parents over the Christmas holidays I read an editorial opinion in the Chronicle stating that any tax stimulus rebates proposed by the incoming Obama administration should be offset by corresponding spending cuts by the government.

As any Economics 101 student at Augusta State University will tell you, your editorial opinion is simply factually incorrect and would cost you points on a test there.

Why?

Any money which is given (back) to businesses or individuals to spend into the economy is not guaranteed to be so spent.

It could be spent on foreign goods and services, used to pay down previous debts, or simply kept under a mattress somewhere.

So therefore some portion of any such rebate money will not be spent into the economy and the financial efficiency of such a rebate system will be less than 100% - however popular it may be with voters.

Government spending on the other hand is for all intents and purposes 100% spent into the U.S. economy.

At BEST, following the Chronicle's advice would generate a stimulus neutral result with consumer and business spending replacing government spending since overall spending is composed of the sum of government, business and consumer spending.

Realistically however, it would result in a negative stimulus to the economy.

Think of it this way:

Suppose the government gives a one trillion dollar stimulus package to businesses and consumers.

Now assume that 85% of that is spent into the U.S. economy while the remainder is spent on foreign goods and services, used to pay down previous debts or simply not spent at all.

The net result is that only 850 billion dollars of primary spending into the economy would result in the business and consumer sectors.

Meanwhile, the government following the Chronicle's advice, cuts one trillion dollars in spending - 100% of which is spent into the U.S. economy.

The overall result is a 150 billion dollar net loss in primary spending into the economy.

That is NOT how you stimulate the economy my friends.

The most effective way to stimulate the economy in times of deep economic recession or depression is to tax those pre-disposed to spend the least (businesses and the wealthy) and use it to fund government works projects such as roads, schools, and other infrastructure.

As any civil engineer will tell you, our infrastructure is in bad shape (witness the recent Minneapolis bridge collapse or the failure of New Orleans levy system in 2005).

Such infrastructure investment would stimulate the economy and create jobs for ordinary Americans and thereby create the necessary consumer confidence to stimulate demand for goods and services from the private sector.

Such an approach is not a permanent solution to our economic problems however unless something can be done to insure that ordinary people can make a living wage in private sector jobs and until something is done to insure transparency and accountability in the financial markets and corporate America.

[izquierdista]

1. A little too long

Your letter requires people to think, unlike the Whine Line in the Metro Spirit (a far better paper IMHO).