Economic Flimflam – Deceptive Nonsense

By: Larry Walker, Jr.

Down here on Main Street, while company X is waiting for person Y to pay their past due bill, company X is cutting back on everything it can, and borrowing money to fill the void. When person Y finally gets that stimulus money and pays their debt, company X will use the money to payback what was borrowed. Company X is not aggressively pursuing new business out of fear of attracting more deadbeat customers, but instead is focused on downsizing and preserving trusted relationships. Company X is now practicing sound business policy (i.e. fiscal responsibility). After nearly two years of being flimflammed, we find that demand has not been sparked, and that not one new job has been created.

Theory P – Temporary Stimulus Drives the Economy (False)

Rationale: If we give 150 million taxpayers a $400 annual tax credit for working, they will go out and spend it, which will spark additional demand, which will in turn fuel an economic recovery. Once the demand begins, Joe the widget maker will start getting a flood of calls for his product and will hire new employees, and buy new equipment as he expands his operation. So next we will need to make loans available for small businesses so they can prepare for the massive expansion. Problem solved. Government stimulus works, right? Wrong.

In Reality – When the government gives a $400 annual tax credit to a person who is broke, in debt, behind on bills, about to lose a job, or behind on their rent (or house note), it won’t be spent on anything new. It will be either saved, used to pay a debt, expedited to pay a past due bill, eaten, drank or smoked.

Under theory P, when the federal government gives a little extra money to person Y, person Y will go out and buy a new car, or a new house, or I-Pad, or something to help the economy. One problem is everyone knows that what the government is promoting is just a tiny, temporary fix. Lets get real, it’s not like person Y is going to get an extra $400 per month, which would possibly pay a car note. Instead, person Y is receiving an extra $33.33 per month (money that normally goes towards income taxes), and $33.33 per month doesn’t go very far in 2010 (it’s amazing that millionaire, Washington elitists don’t understand this). The clincher is that a stimulus, by its nature, is only temporary. Sure, tax credits were provided in 2009 and 2010, but will be capped off by a massive tax increase in 2011. The proposed tax increase will likely be at least double the pathetic stimulus.

‘As the government giveth, so the government taketh away.’

The other part of theory P involves making loans available for small businesses. The loans will theoretically be used to keep the doors open, and to meet payroll while small businesses wait on the massive flood of demand that’s sure to come. The only problem is that the demand came and went with the stimulus checks. So company X is reluctant to commit collateral for additional loans (loans that it may not be able to repay). So the government is encouraging small businesses to take the loans anyway. “Take a chance,” they say. “Hire some people, spend some money, add another location, get things moving and surely the demand will come.” In response, businesses have cut back more, and layoffs persist.

Theory C – Permanent Tax Cuts Do Drive the Economy (True)

Rationale: Under this theory taxes are cut permanently, and incentives are provided for business investment. Let’s give person Y an extra $400 per month, permanently, and see what happens. At the same time, let’s give business X a large incentive to invest and expand. What happens?

The Reality – Initially, person Y will pay off any past due bills, but within a few short months may go ahead and purchase that new car, or a new home, or an I-Pad (or two). Company X will begin to see real sustained demand, and will begin to hire and to think about expansion. With more people working, and with multiples of increased demand, the flame will have been kindled, and recovery will have begun. Tax revenues will increase as the economy grows, and as 15 million unemployed begin to become productive members of society.

The Flimflam Guys – Now, in step the flimflam guys (Krugman, Obama, Geithner, Greenspan, Reid, Pelosi and company) claiming that such a huge tax cut will only add to the current budget deficit.

After adding $2.7 trillion to the federal debt over the past two years and achieving nothing, now these geniuses want to complain about the deficit? Shut the hell up. Sorry but we’re not buying it this time. You had your shot and you failed. Those guys that you call the ‘party of no’, you know, the ones who have offered, “Not one new idea,” told you about ‘theory C’ before you flushed our money down the toilet and you mocked them. Now I guess you have to choose between eating crow, and sending the economy into an endless spiral of debt, inflation and higher taxes.

‘If you can’t stand the crow, just add a little more of Krugman’s Flimflam Sauce.’

The smart money’s on Theory C. Tax cuts work, but they will only work, if you cut spending on everything else across the board, and this is exactly what needs to happen. Cut out the wasteful spending, and give us a real tax cut.