Ryan Rudolph wrote:I disagree with your reasoning - stimulus packages are almost always paid back by the tax payer, and so the spending power of the individiual is reduced, and this spending power should be used by the individual to buy the goods and services that he or she wants, not to bail out companies that cannot stay afloat, and cannot compete in the market because their product stinks. The problem is that the government should not be in a position to nationalize industries with tax money. It is a horrible idea, and only amplifies the problem in most cases. The US should be more worried about the US Dollar going down the crapper by such a large stimulus plan rather than trying to prevent a high unemployment rate. A high unemployment rate is not the end of the world. However, A collapse of the US dollar is the end of the world, in relative terms.
I've been speaking about stimulus packages, not bailouts, and i haven't really advocated for or against stimulus's so far.
I think the economists main reasoning about stimulus packages is that they reduce instability and inefficiency. If say 15% of the workforce was sacked over a few months, this would cause a lot of social and economic instability, and have heaps of costs. There may not be a substantial reason for a contraction of this magnitude to happen, they may simply be up for re-hiring in a few months time. The cost of a big economic fluctuation like this may be more than the interest repayments and/or inflation caused by a stimulus package.
An important factor in this is for the economists to have good predictions of the level they can achieve post package. If they aim high the risk is higher; if things don't go so well a downward slide is more possible and more lethal. If they aim low they may not prevent as many inefficiencies as they could have.
Moreover, if the government cannot raise enough tax dollars to pay for the stimulus plan, they either have to borrow the money from China, or cut social programs, or raise taxes, or simply print money, which is inflationary.
Cutting social programs means less money is going into the economy, only to be put back(?), so i don't see any or much net benefit. Raising taxes takes money out of the economy, only to be put back(?), so again, maybe not much if any net benefit. Maybe if you could release cash or gold holdings from the rich into the economy that would be a form of stimulus, but seems a bit of a stretch.
The key thing to understand is that the US government has been bailing out way too many companies – AIG, Ford, GM, Chrysler, JPMorgan Chase, other large financial firms, private home owners, and so on. Basically, it is a sloppery slope when it comes to this argument because they are up in the trillions of dollars for bailouts, and when does it ever end? because capitalism needs to allow companies to fail when they do a poor job in the market place, it is the only way the system can work. The US doesn't believe in pure raw capitalism, which does have a few dangers on its own - instead, they believe in a managed capitalism through the filter of nanny socialism, which is dangerous when the people in power are not wise economists, but have the responsibility of making large scale economic decisions.
Again, the importance is to best predict where the economy can be in the longer term future and aim for that, whilst paying some attention to 'death of the unfittest'. In order to maximally reduce inefficiency, at the same time as manage risk.
Can you inflate and borrow to the point where you bankrupt your country and destroy your own currency?
Yes. I actually referred to this earlier.
And are the causal consequences of a bankrupt government and failed currency far worse than a 15% unemployment rate?
Yes. Refer above.
