Economists Who Live In A Bubble
Jan 30th, 2009 | 5 responses
I recently saw a debate on Public Television between two economists. One strongly recommended a payroll tax holiday as a very good way to immediately get money into the hands of both businesses and consumers—with Social Security funded by the payroll tax funded instead during this holiday by TARP money. This is an idea that I and a fair number of other people have advocated for months because it is so sensible.
But the other economist in this discussion dissed the idea. Why? Because, he said, the tax rebates that the government sent out last year were mostly not spent. This money was mostly saved by the people who received the rebate. An objection that struck me as mind-numbingly silly.
First, because it made saving seem like a bad thing, though it was a lack of savings for years that has caused such great regrets today for so many Americans.
My primary objection to this argument, however, was that it failed to understand that a chunk of money, the $650 individual rebates or $1,300 rebates for working couples sent out last year, might well be saved, while an extra $15 or $20 a week in a regular paycheck because of a payroll tax holiday would just be cash-in-the-wallet and would almost certainly be spent by an up-against-it population.
This lack of understanding of real needs and real behavior by economists who are too smart and well-educated to look around them, preferring to operate from theory alone, largely explains Bush economics. And it might well drag down Obama economics as well if common sense doesn’t come to the fore.
mike@wallstreetpoet.com
opinions powered by SendLove.to
5 Responses to “Economists Who Live In A Bubble”
You know, I was just thinking..
I never had a course in economics either in high school or college. But I do consider myself substantially knowledgeable in human behavior. Oh…wait a minute. Aren't they the same thing? ; )
“It seems quite obvious that a much more scientific way of trying to give a satisfactory account of human behavior is to give up the assumption contrary to fact, that it is all planned out, and to approach the problem in an objective spirit, to observe the economic behavior of men both widely and closely, and to try to discover, as a result of observations, what generalizations can be made; whether there are uniformities in behavior; what these uniformities are.”
Wesley C. Mitchell
I have to differ with you here.
First of all, of course saving is a good thing and part of the reason we're in this mess is because people didn't save. But as far as short-term stimulus goes, we need money spent to soften the blow of the bubble burst. I think virtually every economist agrees on that.
Secondly, I disagree that having an extra little bit of money each month would likely be spent. If people are just getting by, a little extra money would likely be used as a cushion. It would not be spent on items that aren't necessary. And you are also ignoring the many people who already spend more than they make, in which case having a little extra income would just mean the would add a little less to their debt (essentially the same as saving).
With that said, I think there are a lot of variables in these equations and things are not so cut and dry. Perhaps my argument here is over-simplified, but if that's the case then I think so is yours. But I'm not an economist. This is just what I see when I look around.
A little bit of money might be spent, but with it being such a small amount it will almost certainly be spent on inexpensive items that are just as likely to be made overseas as in the U.S. and not accomplish hardly anything in terms of helping our economy.
I don't understand how a payroll tax holiday will help a person who does not have a job.