Remember that huge government spending package that Congress passed in 2009 to save us all from economic armageddon? While some argue that the government spending in this program prevented the United States from entering another Great Depression, the nation’s economy remains mired in a painfully slow recovery. And we are not out of the woods yet. Among other things, the country was promised that the stimulus would prevent unemployment from exceeding 8%. How’s that working out for us?
So far, unemployment is still hovering around 10%, with pockets of America experiencing jobless numbers that are much higher. A recent article written by Shawn Tully at Fortune.com helps explain the fundamental problems with the current administration’s economic policies. Tully interviewed Allan Metzer, a person he describes as “one of the most influential monetarists of the past 50 years.”
When it comes to understanding why the stimulus hasn’t delivered all that our politicians promised last year, it turns out that it all comes down to human nature. And the study of economics is, essentially, nothing more than the study of human nature. When asked to comment on why the temporary tax cuts included in the current stimulus plan haven’t resulted in an increase in spending and consumption by the American public, Metzer explains, ”The temporary reductions (tax cuts) under Carter, George W. Bush and Obama were all failures, since people spend more only when they’re confident their take home pay will rise permanently.” It makes sense, doesn’t it? It’s just human nature to save the “extra” money from a temporary tax cut or use it pay down some of your personal debt whenever you know that the money is not a permanent increase to your take-home pay.
When asked to comment on whether or not President Obama’s stimulus plan was a good idea, Metzer says, “It’s unbelievable that a man whose main theme was to smooth investment comes to be the proponent of redistributing income away from the people and companies who do the investing. My advice on the stimulus plan was, don’t do it. Let’s look at the plan. First, a lot of the money was used to reduce the deficits of state and local governments by increasing the federal debt. It was simply money transferred from the federal government. The economic multiplier effect was zero. Second, the temporary tax cuts went to paying off credit cards and other debts, not spending that would have increased economic growth.”
Again, it makes sense, doesn’t it? I guess it just makes too much sense for Washington.
