The Problem with Stimulus

I received a few inquiries about my previous Post, and thought I would present some Answer to those Questions. Stimulus is somewhat more complicated than Economists and Politicians would reveal. Stimulus to be Stimulus must have a heavy Stimulus Impact. Economists always like to claim Stimulus Impact to be at least One, though there are many features to reduce the Stimulus dollars below a simple addition to Production. Much of the Stimulus funds are devoted to providing a Profit for previous bad Investment, closing down unprofitable lines of production, Laying off labor by Buyouts, and selling off Inventory below Production Cost to generate Profits on previously bad Production facilities. It is a fact that Stimulus Impact can reach a Low of $.60 for every Dollar of Stimulus.

Another factor entering the Picture is the reality that if Production is financed, then Stimulus Impact must attain a probable level of around 116-118% of Stimulus outlay, before there is any Stimulus at all. Economists will criticize this Insistence, but it is a reality if One would desire actual Repayment of the Debt with the countervailing pressures of Government Spending. The real deterioration comes from the fact that Stimulus Spending becomes solely Production Cost on future Production, if this 118% range of Stimulus Impact is not reached in the length of time where Stimulus is granted, with a residual 18% Tax on such Production Gain is following years until Debt repayment is complete.

We return to the issue of whether Stimulus Impact can automatically be accounted as 1:1 with the Stimulus funds spent. Wherever the Stimulus Impact is less than One for every Stimulus Dollar spent, then the Production Cost rises against the future Production. A scenario where Stimulus Impact is only $.60 for every Stimulus dollar spent leads to a Production Cost of 56-58% on the increased Stimulus. Everyone knows that Business and Corporate Taxes are limited to far less than that figure–some 30-40% of the refined Profits–so that the Production Cost generated must be spread over already existent Production, and even debt service minus actual repayment must be so spread because of the Tax laws in existence. Here We are at the point where Stimulus actually becomes a Production Cost not only to future Production facilities, but also to current Production facilities already in stress. I know there will be vast dispute of this line of Reasoning, but Policy-leaders should be aware of it. lgl