Thursday, May 27, 2010

A better Stimulus program

I especially enjoyed this Piece from Mark Thoma, simply because he sets up the argument perfectly for discussion. My main contention against his Thought patterns may be his assertion that there is a normal Consumption pattern. Mark does not understand he is standing on Quick Sand here. Facts: every Recession brings to the fore knowledge that Products can withstand greater usage, while delayed consumption already had reduced the prestige of constant consumption a household had previously enjoyed; the largest Consumption market–Baby Boomers–are reaching retirement age, and reverting to the Consumption patterns of Retirees; Advertising become less effective as the Consumer ages, and We are in an Aging society. Mark makes the completely unproven assumption that prior Consumption patterns were normal; combined with the postulate that a Return to such a pattern would advantage or please the current Consumer population. I doubt seriously both assertions.

There is a very good argument which states that We should accept the current Consumption pattern at relatively stable, and instead turn our attention towards the completion of projects providing Social utility. I will state quite clearly that this is not advocacy of greater Public expenditures. I personally would advocate a Government expenditure program which absorbed less than 14% of GDP. Economics should teach that Consumption does not need Government sponsorship in order to be genuine. We need to prepare for the future, and We are not doing so!

I would advance the idea that Tax Cuts never be given, except for Those expressly tied to Savings. Congress should rewrite the entire Tax Code. My Concept is that each Income level should have a mandatory Savings Account, where a Tax larger than the indicated Savings be assessed for every failure of Savings fulfillment–this Savings allowed by Payroll deduction exactly like Taxes. To be effective, the Tax rates would remain Constant as to Income level, but Savings must increase by amount of expected Savings accumulation for the number of years in the program; the Tax suspended if it can be proven that Steps are being taken to make up for the lost previous Savings at an appropriate rate. This, to me, would equate to 135% of the previous Savings rate to qualify for Tax suspension. Economists will insist that this would prevent Stimulus circumvention, but I would insist that the program is the only means to sustain stable Consumption over the long-term. lgl

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