Monday, July 05, 2010

Pie in the Sky

Or, Robert Frank phones it in yet again. His current NY Times column, which tells us how to stimulate the economy and reduce the deficit at the same time, is interesting to say the least.

His first program is one where the Federal government borrows money at 3%, loans it to consumers at 8%, and the consumers use it to pay off their outstanding credit card debt which charges a higher rate.

Win-win, right?

Well, first of all outstanding credit card debt is around $900 billion so that is a lot of new borrowing. Pretty hard to imagine that would fly.

Second, what is the mechanism to implement this? Would each consumer have to submit a notarized statement of their credit card debt levels? How would the government force the consumer recipients to use the money to pay off their credit card debt?

Third, what does Frank expect these debt ridden consumers to do with their money once they've gotten a break from usurious credit card interest rates? Why, spend it of course!

Fourth, what will the government do when people start defaulting on their payments? Repo their flat screens?


Frank's second program is to implement a carbon tax that will come into force when the economy reaches full employment. He says this will immediately cause a huge surge of new investment.

Why?

Because the tax will destroy a lot of our existing capital stock!

People, I am not making this up:

"once a carbon tax was announced, the design of nearly every existing machine or structure that uses or produces energy would be rendered suddenly obsolete."

Holy crap! I am pretty sure this is the definition of the broken window fallacy, innit?

I guess you kind of have to admire the guy for trying to sell cap and trade as a economic stimulus program!


3 comments:

BR said...

#3 is really the kicker. The solution is to double credit card debt at an average interest rate of 14% instead of 20%. HI-LARRY-OUS.

John said...

Was Frank manic when he wrote this? Seriously - was he? Tax consumption on the group that already pays an obscenely large portion of taxes based on income. And that is supposed to stimulate productivity growth? Yes, in the country where the high income earners soon move to...

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