Tax Rebates: Old Wine in Old Skins
Some 70 percent of economic growth over the past years was a result of consumption. Now that consumption is slowing down -- with lower retail expenditure during the Christmas season and dropping charges to credit cards -- a tax rebate will again fan consumption.
It will not do a thing to increase savings, from which future investments can be made, writes Wolfgag Grassl. We all know by now that the way out of a recession is through the building of capital goods, not through the temporary fattening up of American retailers and Chinese manufacturers.
Second, government can finance its largesse only by either raising taxes -- if for political reasons not now, then in future years -- or by borrowing even more. Already today, total public debt amounts to over $9 trillion, or two thirds of annual GDP. About 44 percent of it is owed to foreign entities. It will have to be paid back -- whether through years of lower consumption, or domestic inflation, or a reduction in the external value of the dollar. FULL ARTICLE
Comments (9)
perhaps every American will take their $800 and buy an ounce of gold? oops, too late for that, well maybe by the time the cheques go out, they'll be able to a couple of ounces of silver
Published: January 25, 2008 12:08 PM
Good article.
I think the line about 'fighting a problem caused by easy money with... easy money' sums the situation quite well.
Published: January 25, 2008 12:33 PM
so basically, i'm some what new to this, the governments manipulation to low interest rates is backed by actual capital savings and to get back on the right track we need to not spend and increase our savings as well as the gov't savings in order to actually justify a low interest rate that would stimulate the economy without gov't intervention or credit expansion, which just starts the cycle over.
Published: January 25, 2008 1:42 PM
Why is this not taught in our elem., high schools and major colleges? Some day it will be and when the Austriian School of Economics is pervasive through out our society,the US will once again return to real prosperity.
Published: January 25, 2008 2:05 PM
Would one be better off investing his rebate check instead of spending it on goods?
This article almost sounds as if there's nothing a person can do with the rebate check because it's essentially worthless. Suppose a rebate receiver has three options: spending the check on junk, investing in a company that sells said junk, or investing in a company that will do some R&D to make tomorrow's junk -- are the three equal?
Published: January 25, 2008 3:33 PM
I'm just an amateur, so maybe its obvious to everyone else, but I'm surprised that no one has questioned the opening claim in this article that "Some 70 percent of economic growth over the past years was a result of consumption."
How could the remaining 30% of growth (presumably from production) facilitate the 70% claimed to be from consumption?
I naively assume that there should be more of a balance.
Published: January 25, 2008 4:35 PM
I am recommending investment for real returns. Saving it or buying metals (I collect aluminum) builds wealth but does not protect wealth. In an economy where the dollar is losing value (prices are inflating) saving is counter indicated.
I suggested to the friend who owns the collision shop to buy new air hoses. He was probably losing 20-30% of the air he compressed every hour of operation. The return on the investment will soon cover cost and pay “dividends” in lowered energy bills every hour of business all year.
I am going to replace my 60% efficient furnace. A few more dollars can push the new unit to 90% efficient. My son plans adding another layer of insulation in the attic and basement. We will get two returns, added comfort and lower winter heating bills.
Paying off debt will also help plug financial drains. Although an investment that saves on energy costs can be redirected at debt. When the debt is gone the energy savings keep paying dividends.
The bankers always blame their customers. We were too speculative. We over spent. We under invested. We chose poorly. We didn’t spend enough. I can’t imagine that taking their blame to heart will improve my fiscal situation. Considered self-interest and a good sharp pencil works best. Plus a little luck, for who know what dials the Feds are tweaking on the money val-u-meter.
Published: January 25, 2008 4:42 PM
to john reed:
i agree, the writer should have stressed that consumption accounts for about 70% of gdp. he should have gone on to stress the inadequacy of the gdp calculation because it counts only final goods and services and omits the intermediate stages.
the bureau of economic analysis offers a better view of the economy. in 2000, they estimated the us economy had about 23 trillion dollars of sales, and gdp of 13 trillion. this insistence on using gdp opens the door to keynesian-style measures to boost consumption.
i don't know why the mises people didn't pounce on this in this editing room.
Published: January 26, 2008 12:11 AM
um...make that "the editing room". now i understand.
Published: January 26, 2008 12:13 AM