Friday, January 18, 2008

Excuse me sir, Can I interest you in a nice fiscal stimulus??

Apparently everyone has decided that one is in order, we are now just arguing over whether to use Viagra or Cialis and what dosage to impart. Shrub has decided to go back to the rebate well.

Our bedrock economic theory says that rebates shouldn't work, right? Permanent income theory says we consume a fraction of our permanent, or lifetime income each period. So a one time rebate will largely be saved and consumed slowly over time. If we want a big increase in consumption, we'd need a permanent tax cut, right? But unless that was accompanied by spending cuts (or perhaps if it was money financed), simply deferring a tax liability doesn't raise permanent income either, right?

Shapiro and Slemrod claim that the theory is right, that rebates don't spark spending on anything remotely close to 1 to 1.

So, I gotta ask WTF, even though I know the answer. It's the same old shinola. Who cares if it works, let's just be sure we do something!

I guess this is why some economists are arguing that the cuts need to be targeted to people who will definitely spend it right away. Liquidity constrained people or Mankiw's "rule of thumb" agents.

Let me make this offer to Bush right here and now: Give it all to me, the whole stimulus package. I will spend every single penny within a month. I hate to do it, but hey I'm a patriot!


Mungowitz said...

Angus, you are ALL ABOUT the public service.

And, I think you are telling the truth: You wouldn't save a penny.

You would WANT to save some. But you wouldn't. A promise to the people of America is a sacred trust.

I'm just glad to say that I know you, buddy. Thanks for stepping up.

Simon Spero said...

I don't think the rebate is going to work without price controls.

Whip Inflation Now.

Steven Taylor said...

Who cares if it works, let's just be sure we do something!

Isn't that the official slogan of the Congress of the United States?