Defending the Stimulus Plan

Okay I am going to attempt to defend Obama's plan. This was an idea posed by my economics professor where I try to change the ideas of people who don't believe. I thought here would be the perfect place.

I am a republican but when it comes to economics I think I know what I'm talking about better than a lot of people in Congress and simply, republicans are economically retarded. I'll try to keep this short so that my point gets across but people actually bother to read what I am saying.

Obama's plan was to stimulate the economy using money that the US doesn't have which angered many people. Most of the money we borrowed was from China. China has no problem giving us money because the US has NEVER defaulted on a loan and has always paid back their loans on time with interest.

A very important graph used in Macroeconomics is called the Aggregate Demand and Supply Graph. Looks like this...



Two important terms:
Aggregate Demand Curve (Blue) is the total value of all the goods and services produced within the US.
Aggregate Supply Curve (Red) is the total supply of all those goods and services.

These curves shift for different reasons.
Demand shifts:
-Increasing and Decreasing in spending by citizens, businesses, and governments.
-Increasing and Decreasing in taxes
-Etc.

Supply shifts:
-Advances in Resources (Money, Gold, Salt, People, etc.)
-Advances in Technology (New computers, better energy techniques, etc.)

_______________________________________________________________________________________________________________________

Knowing this you can determine the reasoning behind the government actions.

When the stock market "crashed", the housing market collapsed, and big banks started to fail people started freaking out. They stopped spending and started saving. The aggregate demand curve shifted far left, reducing GDP along with prices (remember how much F-150s cost in mid to late 2008, like $17K) and the economy was in a recession. This is exactly how the Great Depression occurred. The stock market crashed in 1929 and everyone stopped spending money, including the government. That's right the Great Depression was caused by a LACK of spending and we got out of it by the government spending a lot of money on WWII.

So in 2008 when this shit started and people stopped spending they made the same mistake, they stopped spending. No economy can work without people spending money. Citizens and businesses are too scared to spend money which is understandable but that is exactly what needs to happen. Basically it's down to the government. Congress worked with the economists in the FED and came up with a came up with a big number, $700+ billion. The stimulus plan is going to shift the aggregate demand curve back to the right making everything good again. It will increase GDP and prices will go back up (F-150s now cost 22K).

People still haven't quite caught on but they need to start spending money again. It's a classic theory in economics called The Ricardian Equivalence Theorem, which states that when people start seeing scary things happen in the economy their butt holes shrink and their wallets close.

So go spend money!!!

 

Spending the money we have is good. Spending the money we don't have, such as in credit is bad.

Just because the banks want us to think that's the way the economy should be run, doesn't make it so.

Yes, in the short term we will be better off, but in the long term the debt needs to be paid off and we can go back to a cash driven economy. The whole reason for credit in the first place was to get people into cars and houses. We need to go back to that thinking. Or, we can transition to a producer driven (as opposed to consumer driven) economy and let other countries buy our shit for a while.


Or, we could just End the Federal Reserve Bank, since Congress is supposed to dictate the monetary supply anyway

 

I completely agree with everything you said. However the main reason people were angered over the stimulus plan is because of all the pork included in the bill along with the fact that the jobs created were only temporary jobs and did nothing to stimulate people into spending again.

Another reason why people don't want to spend especially businesses is because of all the radical regulations and such that washington wants to put in place that actually stunt business growth. Lets say i'm a small business claiming my business income on my personal income taxes (which majority of small businesses do...also small businesses make up over 90% of our economy) If I know that washington plans to let the tax cuts expire at the end of this year. I don't want to spend anymore money because my taxes will go up because i'm "rich" when taxes go up, I have to raise my prices to make up for the tax increase which in turn lowers the propensity for people to buy my goods and services because they cost more...which means my revenue decreases which raises the question "How will I pay my expenses (especially debt service on capital expenses to grow the business) and my employees?"

I could go on for hours about the trickle down effects but I think most people get the picture.

Yes IN THEORY the economic stimulus is suppose to shift the demand curve however there is an ulterior motive to the money government pumped into the economy.

 

Here is my 2 cents.
My wife and I live in a very conservative 1200 sq. ft. home, I drive a Taco (would have rather had a Tundra), my wife drive a 6 year old Honda Accord. God has truly blessed me with a wonderful home, family and job. We made the decision to live and spend within our means. Yet I see people all around me the same age that has 3000+ sq. ft. homes, driving a BMW and Tundra loaded to the gill, plays golf everyday, vacation 5-6 times a year, but they are behind on all there bills, and at the end of the day they will come out smelling like a rose and keep all of there high dollar toys. BUT what do I and all the millions of people that live within their means and don't try to out do the neighbors, WHAT DO WE GET OUT OF THIS OBAMA PLAN????
My rant is over.
THE END.

 

The money for the stimulus was borrowed, mostly from china.
China where a lot of jobs are going. So not only are we losing jobs now we are contributing directly to their wealth of their government who in turn is subsidizing industry with HUGE grants to move manufacturing and other jobs to China.
Less jobs for us more money for china.
Perhaps I am a little sensitive to supporting China as the clock is ticking when my job is gone.
We didn't need to pay the banks trillions.
If Obama wanted to do some good he should have cut federal income tax and leave money in the pockets of the tax payers.

When you say people stopped spending do you know why?
People losing jobs, can't pay mortgages, car payments, credit card bills.
ARM who let that happen, and why did people opt for that. Friends adn relatives fell for the low payments but didn't think their rates would become 6X.

Spending is increasing because purchases pushed off earlier (last two years) need to be made, stimulus or not.
As the pay back for the stimulus package and obamacare come into play, more money will be siphoned out of the tax payers pocket (less spending, less disposable cash, less savings, less investing) and out of the corporate poackets (less growth and investment) I beleive we will be WORSE off than if we let the chips fall as they may have.
Maybe I am missing something.

 

What may that be?

 

weeee, lets spend $2billion on a "high speed" train in IL. Fuckin Brilliant

and yes, a business isn't big enough to fail. fuck up, go home. that's a free economy.

but hey, lets pump up business that don't know what they are doing.

hmmm, i need to go check to see how much GS borrowed.

 

In first paragraph you are talking about an idea called supply-side economics. It's what Regan tried to do and failed miserably. Supply-side economics says that if taxes are cut people will invest more, spend more on big ticket items but it doesn't work. Regan supported the troops which is all fine and good but when it comes to economics republicans can't rap their minds around the fact that you can not just keep cutting taxes.

The current debt on the US is around 12 trillion dollars.



If we didn't spend a dime on DOD and related programs such as veteran affairs, NASA, FBI, Homeland Security it would take around 12 years to pay off. We all know that's not going to happen.

Basically here is my opinion... Eventually (I don't believe ANYTIME soon) countries are going to stop loaning us money. The US's opinion at that point would be to default on our loans, declare international bankruptcy (impossible) or sell assets.

We could sell Puerto Rico or something but is China going to send their Army over to make everyone move, no of course not. The US is going to end up defaulting. Simply we are going to tell the world that we can not pay back our loans. Then we are going to say, "hey, remember that time you guys decided to start a war and we helped you out or remember when the American Red Cross came over and helped you out after that earth quake?" The US will default. Countries will get angry but they will have to see it coming. Everything is going to workout just fine.

 

x 1,000,000,000

 

Economics 101

If you keep spending a lot more than you take in, you will go broke.

The current government debt is equall to a person with a $50k income having a $275k mortgage and has plans in the near future to go out an buy a vacation home.

Try that out as an individual and see how it works out for you. If you did, you would have to work for an employer that would allow you to have a vote on your own (vote of one) and demand a pay raise when ever you need one. See how that works out for you. If in this utopia you imagin, that actually happened, there would come a time when the employer goes broke and then there would be complaints that it was not your fault.

Is that simple enough?

The fact that they still teach economics that way is a good indication as to why all the people with economics degrees helped drive the bus into this ditch.

Dial into C-span and listen to the hearings about Goldman right now. The Gment is going to try to put it all onto the corporations, but that is only part of the story.

The states were just as guilty about the housing crisis that was one of the first cards to fall in the stack. They regulate real estate because they set the requirements to play in the market. They had a vested interest in the overheated market? Does your economics professor know what it was? .......... Ding, ding, ding it was property taxes and development fees. They were as drunk on the money as wall street was and no one took a look and said "this is bad and cannot continue" because they were spending the money as fast or faster than it came in.

Add the willing public that was drunk on the concept of flipping a house for tens of thousands in profit or pulling the equity to buy more things (spending retirement security) and you have the perfect storm.

 

Num,
Regan also started to cut back on defense.
For instance he pulled the plug on the 600 ship Navy, as the USS Pennsylvania was to be the 600th ship.

I agree more with you on your second post. the borrowing is not making us stronger.

 

NumNutz, your fancy chart is only a small part of the budget. All the stuff on auto pilot in spending is what is chewing up the money taken in. Discretionary spending is getting eclipsed by entitlement spending. That is where the bleeding is. The money for those programs has been spent and IOUs written.

Try running a business like the government runs its finances. You will be arrested. You know why? They know it is a ponzi scheme that Bernie Madoff would have LOVED to run.

 

The purpose of the graph was to show the amount of spending on Defense mostly.

 

Yes it's not making us stronger but the spending is what is keeping the country a float. The people weren't doing the spending so the government had to spend to keep the economy alive.

I'm a college student so I'm gonna go waste my parents tuition dollars on what most college kids do on weekend. I'll answer this in the morning.

 

You're right, unfortunatley.

I am a registered Republican, but a lot of these idiots who talk with conviction (posters and otherwise) think they know it all, but in reality, don't have a clue what they are talking about.

They parrot what they hear from agenda driven meatheads like Limbaugh and Hannity and remain ignorant. Anytime i overhear (accidently) that idiot Limbaugh, i ask myself how the hell he has an audience for that endless stream of crap, or for that matter, how he can even manage to keep a straight face pooping it out.

This situation was a long time coming, and they all share the blame. Unfortuenately, the smoke and mirrors will not get us out of teh mess we are in now. We've been sold out by our fearless 'leaders' for far too long.

...and this is coming from a guy is self employed and has had to turn down thousands of dollaras of work on a weekly basis for the last several weeks. I can't take the work. ...can't be two places at once.

 

Look at how much families making $100 to $200k pay in income, SSI, and medicare taxes.
I can see why the option to cut taxes was not the first choice. Driving up the deficit puts a physical number in the eyes of the tax payers. Raising taxes to pay down the deficit is then better accepted.
However in the long run, in my ignorant opinion, raising taxes takes more money out of my pocket curtailing my spending in the future.
If the $6k check (in addition to the $28k already paid) sent to the IRS was left in our pocket, we surely would have contributed to the economy far more directly without government involvement.
I have looked but haven't been able to find anything that breakdowns how much and how effective the "stimulus" money has been.

All I can say is thank you, as you will be paying for this deficit far longer than I.

One way to ensure the consumer keeps spending up is the passage of HR 2454.

I don't think the US can keep borrowing money at the rate it is being done and still have a viable financial system.

Kep jobs from going over seas.
Move people working means a larger tax base, more disposable cash, more cash, more spending, more jobs and so on.
I have friends doing jobs that high schoolers/college students should be doing on their summer break because they are battling for a single job opportunity against 100's of others.
Yet most of us here didn't buy and American truck.

 

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Grasshopper ... you have much knowledge for your age.

.

 

I did my part by buying a new Tacoma this year.

 

Typical, "where's my money"

The stimulus was to prop up businesses, not put unearned money in your pocket.

I live in a modest home ($185k), have a 09 Tacoma and wife has a 05 Lexus SUV. I'm retired from the AF and she only makes $1600 a month. We get buy just fine cuz we're smart with our money.

That said, I'm glad the car companies were saved purely for the people who would have lost their jobs otherwise. Doesn't mean, to me, the companies deserved any assistance.