Crash

Recently I’ve been finding all I’ve learned about economics turned on its head. As someone recently graduated from a university undergraduate program, I am not too far removed from economic abstraction. How economics should work, an ideal if you will.  Real world effects either confirm or confuse what’s been learned in the classroom. One such effect is to see how two accepted economic models react to a recession. On one side, we have the microeconomic model of the firm and it’s pathway to success, and on the other, the macroeconomic model of growth of a domestic economy. I accepted both of these models from lesson one. Now I see how one can work against another.

Please don’t stimulate my economy…

Country Politician - George Bingham

In my other recent blog, In Defense of Capitalism, I argued that increased government activity would exacerbate this crisis. I argued that, in the long-run, investment will fix itself. As I read the news, I hear good and bad things. I cringe when I hear that the government is going to spend $850 billion for a stimulus package. But, I am encouraged when Barack Obama wants to cut taxes to stimulate the economy. I fear that government spending, on this scale, is bound to be inefficient and may makes things worse. But, I also know that tax cuts tend to stimulate economies in the long run. When people can spend their own money, they tend to benefit an economy. Money is invested wisely, looking for returns. The government is a bureaucratic mechanism that is extremely slow to work. When it does finally work, it tends to lend and trade favors not always for the social economic good. Governments tend to overspend on shotty merchandise. You need only look at the J. Edgar Hoover building to see how poorly the American government spends its citizens’ money. What makes you think they will use $850 Billion any wiser?

Rebate Check (part II)

If anyone is curious how Americans are spending that stimulus check, here’s a website dedicated to sharing those stories. Not surprisingly, many are using it to pay off debt. I’m sure that wasn’t quite the intention of the rebate, but it gets into the economy either way. If I purchase a dishwasher with the money, that increases the revenues of the dishwasher company. They can in turn reinvest that into growth (theoretically). If I pay off debt, I send money to Visa or American Express. They will in turn either reinvest that money or lend that money out again. There is a stimulus in the economy, but I would equate it to a burp. The money has been “digested” already; our economy will need real sustained growth to come out of this funk. Rebate checks are nice, but they fall well short of a long-term solution.