Friday, February 13, 2009

Economics Oversimplified? Or Just Too Simple?

I have so much to do, but dadgummit, I really need to unload this.

On the morning drive to the bus stop, I usually listen to local talk radio. They're discussing the porkulus bill, when a caller named Kevin (i think) calls in and makes the following argument:

The two biggest earmarks of the Senate version of the bill were made by Republicans.

He was asked what those earmarks were. His answer--tax-cuts. And he then tried to use this to say that the Republicans were being hypocritical because their earmarks are just as bad as the Democrats' frisbee-golf courses and ATV trails they're buying for millions of dollars.

If I hadn't have been about to get out of my car, I would have called in (an unheard-of thing, for me), and said the following:

The difference is that tax cuts do more to stimulate the economy than hand-outs, and stimulating the economy is pretty much the point of the STIMULUS bill, isn't it?

Let's massively oversimplify this, so that it's in terms we can grasp. Say the stimulus bill was for... $35 dollars, and it has two parts. A $20 outlay to buy Kevin a pizza, and a $15 tax cut for me.

So at the end of the day, Kevin has his pizza. And we're not talking just any pizza--we're talking Fuzzy's Pizza or Barry's Pizza, one of the higher-end pizza establishments in the Greater Houston Area. Good pies. REAL good pies. So Kevin has his pizza, and I have $15 more dollars in my paycheck.

Well, now, my yard needs to be mowed. So I pay the neighbor kid $10 dollars, and use the other $5 to buy myself lunch at Burger King.

So Kevin has his tasty pizza, which he could eat and be full, but the rest starts to get cold. Meanwhile, I have created 1 new job (however temporary), and still had money to put into the local economy.

BUT it doesn't stop there. Because the neighbor kid takes the $10, buys a $5 comic book at Bedrock City Comics, and uses the other $5 to buy a sundae at Cold Stone.

So now, Kevin maybe has his enjoyable pizza leftovers, still cold, and I have created a job, bought lunch for myself, and the neighbor kid has invested in two sectors of the local economy HIMSELF.

But it doesn't stop there! Because the comic shop uses the five they gained, minus expenses, to help make the next purchase of stock, which provides more income downstream.

Now, you may say to me, "Dave, the same could be said for Kevin's pizza company." And this is true, to an extent. But if the government bought Kevin a highly-overpriced pizza, from a union-run pizza shop, the amount of downstream prosperity is much more limited. The costs are too high, and the government purchaser is too stupid to look for a better deal. (Maybe they have promises to keep to one of the pizza unions, and their hands are tied.) The government could have said, "Hey Kevin, here's twenty bucks, buy yourself a pizza." Kevin could have taken that money and bought a cheaper pizza, pocketing the rest. If Kevin were an enterprising young man, he could even have bought several frozen pizzas, cooked them himself, sold them by the slice, and made a profit.

The question then becomes: Who has the best chance of using the allocated money in such a way that the economy is better off as a whole?

According to John Kerry, the government does, because no one knows how the private citizen will spend their own money. He is concerned that Americans won't invest in the same projects the government wants them to. And he's right--I couldn't give a flyin' flip about a frisbee-golf course I'll never see. But Kerry, and others in Congress like him, don't want to give the American consumer the freedom to spend this money--OUR money--on what WE want to. He sees it as the government's money, and thinks it should be the wisened heads of Congress who make that call.

*tap tap tap* Is this thing on?

It's all about CONTROL, folks. That's what this all comes down to. Control. Who's in charge of OUR money. Who makes decisions about OUR livelihoods. The government, in this instance, isn't the least concern about being "of the people, by the people, for the people" ['who came up with that old line?' 'aw, some guy born 200 years ago!']. Instead, in spite of the will of the people, Congress has decided that they need to take OUR tax dollars and spend them without our consent.

It's about control, Kevin.

Class dismissed.


Anonymous said...

All this post made me want to do is eat pizza. A lot of pizza.

Trevor said...

Money is better spent by the people. Right on!

Trav said...

Absolutely. Give us money!

Trav said...

I wrote a very long exposition on the stimulus package over on my blog. Come witness the folly.

Anonymous said...

Tax cuts don't really create jobs though... especially if companies are already struggling. They don't go out and hire another person, they go out and pay off debts or buy advertisement or something.

Dave said...

but paying off debt and getting more business helps shore up financial instability which results in more revenue. More revenue means more jobs, or at least the higher likelihood of more jobs.