Young Democrats of Harford County

For Democrats of all ages and other like-minded folks in Harford County, Maryland.

Let’s get real

Posted by trumanesque on February 10, 2009

Try this out. Assume you have $1.00 and have the choice of buying one of two stocks. The first stock will appreciate in value so that you have $1.57 within a couple of years. The second stock will immediately drop in value, but will eventually increase to about 98 cents. Knowing this, you would rather buy the first stock, correct? Pretty basic. You want to get a positive return on your investment, and the more positive, the better.

This is why the debate over the President’s recovery plan is so infuriating. Any economist worth his or her salt will tell you that a dollar invested by the Government adds more to the GDP than a dollar not invested at all. The first dollar is actually spent–for labor, goods, services–and has a ripple effect throughout the economy. The laborer has more money to spend on groceries, a house, a TV, etc. which also increases demand for those items and for labor to produce them. This is why it is important for the dollar to be spent.  The spending is the stimulus.

The second dollar, on the other hand, is likely to be pocketed or used to pay down debt–for something already purchased. This is why most recent tax cuts–remember your 2008 stimulus check?–haven’t really stimulated the economy. They’re usually used as a blunt instrument by politicians who want to keep their jobs. But a few hundred extra bucks in most people’s pockets isn’t going to make any difference:  maybe another month’s rental or mortgage payment, or a partial payment on credit card debt. A few thousand bucks in a small business owner’s pocket probably doesn’t mean much more, because nobody else has the money to buy her product.  It certainly won’t permit her to hire more people, even if she were so inclined. So the multiplier for Government purchases is projected to be 1.57, while our GDP is not likely to increase at all because of a tax cut.

Republicans in Congress therefore have zero credibility when they advocate mostly tax cuts as their idea of “stimulus.” They know all of the above, and yet the only idea they’ve had–now or ever–is a tax cut. They even tried to pull the whole recovery bill and replace it with a permanent, $3 trillion (!) tax cut. Don’t look for fiscal discipline, or serious arguments, from this crowd.

Why are Republicans fighting this bill so hard, or at least trying to junk it up with tax cuts? Because they know if it succeeds, their entire philosophy will come down like a house of cards. We’ve seen this movie before (see:  Health Care Reform, 1993).  The Republicans–at least on economic matters–have long believed that less is more. Don’t regulate, don’t oversee, don’t invest, contract everything out, let the market adjust itself. Mr. Obama and most Democrats think that notion is flawed and want to reverse it. You see, the President, like most Americans, believes that government can and should actually help people with their problems and make their lives better. If he’s able to prove that, the modern Republican Party–or what’s left of it after the Bush years–is dead.  What will they have left to say?  “Yeah, but . . . Look, terrorist!” 

The stimulus fight could be the Republicans’ last stand. I just hope they don’t take the rest of us down with them.

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One Response to “Let’s get real”

  1. […] Let’s get real « Young Democrats of Harford County […]

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