Thursday, November 06, 2003

Okay so today's topic: Sort term economic stimulus. To prevent the economy from dipping into an "recession" what do you do? First off lets identify some things. The strength of our economy is, for the most part, measured by GDP and CI. There is nothing really built in to measure efficiency or power or reserves in comparison to the rest of the world. So basically a recession is people are less willing to buy new, thus companies produce less, thus companies are forced to become more efficient. Keep in mind we are still talking about short term. Since we are living with taxes right now and we can't eliminate them fully here is why giving a substantial tax break to the lower income ends up helping the economy more than having a fixed percentage across the board (basically it turns into an optimization problem between how much you're willing to give up in tax revenue and how much you get out by keeping the economy out of "recession" the ideal of course is to make out better then not giving the break). The everyday American doesn't save, this is very nearly one of the axioms behind the current economy. If you cut taxes to middle class and below they will spend it, they probably won't pay off debt, they'll probably buy new. This of course helps with how we measure economic strength, and everybody becomes happy and then the economy does return to strength because everybody thinks its strong. You have to create the appearance of strength to create strength. This of course increases the stock prices, etc and eventually means money for those who invest their surplus. Now on the other hand if you were to cut taxes on the upper part the same as the lower part, it is very likely that money would not go back into the economy as money to blow on new goods, because the upper could already purchase those new goods when they desired, so the money returned would go into paying of debts and towards investments, basically the smart choice. Does this give us the appearance of a strong economy? No, because how we measure strength will not reflect these investments. Stock prices, etc will then continue on plummeting and eventually the "recession" increases in effect. Also think about stock prices on the short term, a company does not create new jobs, change budgets, or anything of the like with a short term stock rise. They pay dividends, or else do nothing. So all in all, the whole picture needs to be taken into account before a hasty judgment is made about the rich making if off worse then the poor because their tax cut is less. Do you see any of them complaining about it? Maybe there's a reason, maybe they're willing to forego a little surplus to keep the market from dropping into "recession" which has long term effects for everybody. Need I bring up that the upper crust that is creating the tax cuts to begin with?

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