- 26 Apr 2009 09:44
#1886947
By Adrien.
In last time’s entry, that was the first of this series, I explained how in my opinion stimulus plans working in a Keynesian perspective are relevant answers to the crisis and problems we are facing as they start-up demand and production again, thus keeping jobs alive, while helping us avoid deflation.
But as we have seen before, during and after the G20, on which I shall make an entry too, there is much reluctance to the adoption of such stimulus plans, or packages. The bulk of this reluctance is of course felt among conservatives, for ideological reasons, as well as, let’s say the words, class interests. But, let’s try to honestly face this opposition.
So, what risks to a stimulus plan ?
Opponents to stimulus plans often put forward three arguments. First, that it is going to make people save up the money as their confidence in the economy remains low, meaning all the money spent will be lost. It is possible, individuals have different behaviours and needs, but a direct increase in wages, even more than the check, maintains the same behaviours, but shouldn’t affect the percentage of a household’s budget dedicated to savings, which is also usually the last priority beyond primary expenses like food, rent, transportation costs, etc
They also object that when or if the money is spent on consumer goods, it will not stimulate production inside the country but abroad, as a great share of consumer goods are imported, leaving the domestic economy in a slump, while making competitors stronger. That remains a possibility, but economies relying to a great extent on imports are living dangerously at all times anyway. My thoughts are that in the bigger picture it is not a cause of worry, for the newly gained buying power will be used to stimulate tertiary activities, local productions in all sectors, the number of jobs working to import goods but established in the country, as well as, when you think about it, foreign partners who in turn buy your country’s exports. In the end, the share of the stimulus that will end up abroad will be very thin.
Finally, they object that it will add to debt. Factually, it will, but it is not the cause of it, and it should not be forgotten that it is a kind of plan usually cheaper than bailout loans to banks, insurance companies and trading groups that provoked the whole process. Also, while sudden expenses like these are extraordinary, the debt is built up day to day by much more ordinary expenses like an over reliance on credit on the part of our governments, made worse by the tax cuts granted to the richest classes of our societies, by war, etc. In the best of worlds, there would be an emergency fund for this kind of situation, it doesn’t have to be seen as one big loan taken by the State. And let’s not forget that a share of the money spent will be gained back through taxes dependant on demand like VAT or dependant on production like professional taxes.
Let’s not forget that an economy in a slump means a crisis of income for every link of the chain, and that increasing the debt also means paying it back, which requires for the government a return of sorts, through taxes. If the economy does not restart, then the debt will be even greater, for interests will pile up, creditors will be few, and long-term stability compromised.
As you can see, stimulus plans are much lighter in consequences than not implementing them. They also prove that they are efficient throughout the economy, that they partly pay back for themselves if you think of the taxes they’ll bring back, or the other costly measures they avoid, such as welfare aid for laid-off workers, funds to support the reconversion or reorganisation of communities that lost their main activity, etc.
Keeping our economic minds focused on the concrete aspects of workers as well as demand and production is the key to success, unlike a bet on speculation, credit, dividends, etc.
In the next, and last, part of this series, and for readers who still doubt of the efficiency of Keynesian methods in a time of crisis like this one, I will explain how in my opinion all the other techniques adopted by conservative governments in Europe and elsewhere are not answers to the problem.
In last time’s entry, that was the first of this series, I explained how in my opinion stimulus plans working in a Keynesian perspective are relevant answers to the crisis and problems we are facing as they start-up demand and production again, thus keeping jobs alive, while helping us avoid deflation.
But as we have seen before, during and after the G20, on which I shall make an entry too, there is much reluctance to the adoption of such stimulus plans, or packages. The bulk of this reluctance is of course felt among conservatives, for ideological reasons, as well as, let’s say the words, class interests. But, let’s try to honestly face this opposition.
So, what risks to a stimulus plan ?
Opponents to stimulus plans often put forward three arguments. First, that it is going to make people save up the money as their confidence in the economy remains low, meaning all the money spent will be lost. It is possible, individuals have different behaviours and needs, but a direct increase in wages, even more than the check, maintains the same behaviours, but shouldn’t affect the percentage of a household’s budget dedicated to savings, which is also usually the last priority beyond primary expenses like food, rent, transportation costs, etc
They also object that when or if the money is spent on consumer goods, it will not stimulate production inside the country but abroad, as a great share of consumer goods are imported, leaving the domestic economy in a slump, while making competitors stronger. That remains a possibility, but economies relying to a great extent on imports are living dangerously at all times anyway. My thoughts are that in the bigger picture it is not a cause of worry, for the newly gained buying power will be used to stimulate tertiary activities, local productions in all sectors, the number of jobs working to import goods but established in the country, as well as, when you think about it, foreign partners who in turn buy your country’s exports. In the end, the share of the stimulus that will end up abroad will be very thin.
Finally, they object that it will add to debt. Factually, it will, but it is not the cause of it, and it should not be forgotten that it is a kind of plan usually cheaper than bailout loans to banks, insurance companies and trading groups that provoked the whole process. Also, while sudden expenses like these are extraordinary, the debt is built up day to day by much more ordinary expenses like an over reliance on credit on the part of our governments, made worse by the tax cuts granted to the richest classes of our societies, by war, etc. In the best of worlds, there would be an emergency fund for this kind of situation, it doesn’t have to be seen as one big loan taken by the State. And let’s not forget that a share of the money spent will be gained back through taxes dependant on demand like VAT or dependant on production like professional taxes.
Let’s not forget that an economy in a slump means a crisis of income for every link of the chain, and that increasing the debt also means paying it back, which requires for the government a return of sorts, through taxes. If the economy does not restart, then the debt will be even greater, for interests will pile up, creditors will be few, and long-term stability compromised.
As you can see, stimulus plans are much lighter in consequences than not implementing them. They also prove that they are efficient throughout the economy, that they partly pay back for themselves if you think of the taxes they’ll bring back, or the other costly measures they avoid, such as welfare aid for laid-off workers, funds to support the reconversion or reorganisation of communities that lost their main activity, etc.
Keeping our economic minds focused on the concrete aspects of workers as well as demand and production is the key to success, unlike a bet on speculation, credit, dividends, etc.
In the next, and last, part of this series, and for readers who still doubt of the efficiency of Keynesian methods in a time of crisis like this one, I will explain how in my opinion all the other techniques adopted by conservative governments in Europe and elsewhere are not answers to the problem.
- By ingliz
- By Unthinking Majority
- By FiveofSwords