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Fether

Views on Stimulus

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I have been trying to understand the different schools of thought when it comes to Stinuls bills during depressions, recessions, and in times to prevent potential recessions (like we see now). This also bleeds into the concept of UBI and how that would effect economies in the short and long run as well as national debt and important is it really?

From one side (right) I have only heard complaints against it, saying that stimulus only creates inflation and more debt as the US “prints” more and more dollars. The only outcome is short term comfort but long term super inflation and debt (which I still don’t understand what the risk of a national debt is).

From the other side (left), I see arguments about how, despite inflation and debt, stimulus and a UBI would encourage more spending and would grow the economy due to the more movement of money. This happened personally where we got the stimulus check and we chose to use the money to get two expensive things we would not have otherwise have gotten (a new dining table and electric drumset for myself).

I’m pretty consistently right in my thinking, but this is one place where the left view makes more sense to me. The only thing I do not like about stimulus and UBI is that it encourages a culture of wide spread dependency and entitlement. I saw that first hand on my mission where entire cities were dependent on the government handouts.

But admittedly I am not comfortable in my current understanding with the whole thing.

I would love some insights in this as well as some links to sources where I can hear “experts” (whatever that means these days) and explain it. I’m not really looking for convincing, I just want to see the explanation as to why stimulus/UBI is good/bad. Everywhere I have looked has only provided very basic explanations of why it is good or bad, most breaking down to an appeal to pathos on the right and left.

Edited by Fether

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28 minutes ago, Fether said:

I have been trying to understand the different schools of thought when it comes to Stinuls bills during depressions, recessions, and in times to prevent potential recessions (like we see now). This also bleeds into the concept of UBI and how that would effect economies in the short and long run as well as national debt and important is it really?

From one side (right) I have only heard complaints against it, saying that stimulus only creates inflation and more debt as the US “prints” more and more dollars. The only outcome is short term comfort but long term super inflation and debt (which I still don’t understand what the risk of a national debt is).

From the other side (left), I see arguments about how, despite inflation and debt, stimulus and a UBI would encourage more spending and would grow the economy due to the more movement of money. This happened personally where we got the stimulus check and we chose to use the money to get two expensive things we would not have otherwise have gotten (a new dining table and electric drumset for myself).

I’m pretty consistently right in my thinking, but this is one place where the left view makes more sense to me. The only thing I do not like about stimulus and UBI is that it encourages a culture of wide spread dependency and entitlement. I saw that first hand on my mission where entire cities were dependent on the government handouts.

But admittedly I am not comfortable in my current understanding with the whole thing.

I would love some insights in this as well as some links to sources where I can hear “experts” (whatever that means these days) and explain it. I’m not really looking for convincing, I just want to see the explanation as to why stimulus/UBI is good/bad. Everywhere I have looked has only provided very basic explanations of why it is good or bad, most breaking down to an appeal to pathos on the right and left.

I am not an economists.  I do know how to do math and hold to the KISS concept of money - KISS stands for Keep It Simple Stupid.  The stupid term is not pointed at anyone but rather s rhetorical. 

I think of money as a means of exchange.  The money itself is worthless but is given power by what backs up or support the money.  Money itself is economy and therefore responds to supply and demand.  Inflation is the result of money being available - there more money there is in circulation - the less it is worth.  But this can all get rather tricky because as wealth increases the more money become valuable.  

So the simple answer, in my mind, is that when a government generates more money without increasing wealth - the less value that money can draw in exchanges.

I have also learned a lesson about giving someone in need some money.  I am convinced this will never solve any problem and in the long run will make those receiving the money dependent.  If we want to help someone - we ought to be free with goods and services that are needed.  First because money is not the same as goods and services and Second - Goods and services are will be seen as a sacrifice that ought to be appreciated - whereas money becomes an entitlement that is seldom appreciated.  A good example of this is a kid in college.  If they request help and instead of sending money offer goods and services - the kids seem to become much more invested in getting their own money.

Whenever my kids have stated that they want a job that pays "good" money.  I tend to sit down with them and explain that any money they make on their own is "good" money.  Bad money is the money you obtain with nothing offered in return.  Thus stimulus is "bad" money.

 

The Traveler

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It's been a while since my college macroeconomics class, there seemed to be two schools of thought on the impacts and wisdom of increasing the money supply.   I figure the battle hasn't been won yet, because I'm hardly alone in being scared silly at stuff like this:

IMG_4725.PNG.1ed198c36e8e6fd99af97dc87021df82.PNG

 

 

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1 hour ago, Fether said:

Is inflation so bad as long as the market stays active and the standard of living continues to improve? 

It is when the improving standard of living comes at the cost of undermining our economic system and eating our seed corn.

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30 minutes ago, Vort said:

It is when the improving standard of living comes at the cost of undermining our economic system and eating our seed corn.

Isn’t the success of an economic system measured by the prosperity of the people? 
 

I ask only to understand, I’m not disagreeing, just challenging so I can understand.

Are you saying that Stimulus is helping us today only to doom us in the future?

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I thought the Trump "Tax Cuts" were stupid, and as it has shown they raised our debt and enormous amount.

I think the "stimulus" is also rather foolish and much of what is being done will also raise the debt.

I don't have a problem helping out those who have lost their jobs due to shut downs with the pandemic.  I think that could be useful to keep money flowing and to help them in a bad situation.  By all means, give those who have lost their jobs that money currently, but that is not going to equal over a Trillion dollars.  If they are in need because of the shut downs, I agree that giving them money to pay rent and buy food is the right thing to do.  I do not think it is economical to give EVERYONE money, especially as most of the shut downs are STILL shut down, thus those companies that will really need the boost won't be able to get it anyways.

If you want to stimulate the economy, you have to have the economy open first.

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I am actually for the initial stimulus.  But I'm not for these later waves, including the most recent check from the outgoing administration.

If the same amount is given to every citizen in the country, then the citizens get to vote with their dollars on what companies they want to support because they offer useful products at a good price.  And it lets us decide what a "useful product" is.

I would have added a joint legislative and executive request/encouragement for those who don't need it to donate it to someone they think needs it or donate to a worthy cause.  I would not draw an arbitrary income level based on a year old financial statement (tax returns).

When done in this manner, a stimulus is not a matter of the government choosing winners and losers.

The only other question is "how much?". Now that is really the problem.  If it is too small, it really won't help anyone.  If it is too much, it will do too much damage to the economy. 

Since it is the nature of politicians to give out candy, the upper limit will always be ignored and economic ruin will follow. -- just as it did in Argentina under Peron.

And that is the exact sort of thing we see in the current stimulus bill that will eventually make its way to the President's desk after they invoke the nuclear option.

Edited by Carborendum

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12 hours ago, JohnsonJones said:

If they are in need because of the shut downs, I agree that giving them money to pay rent and buy food is the right thing to do.  I do not think it is economical to give EVERYONE money, especially as most of the shut downs are STILL shut down, thus those companies that will really need the boost won't be able to get it anyways. If you want to stimulate the economy, you have to have the economy open first.

I agree.  What makes the American economy good is people willing to show up and work thirty-two to fifty hours per week to provide goods and services for others to purchase.  Money is just a medium of exchange.  People who are fully employed should not be getting this "stimulus" money.  If others are not fully employed or out of work they should be able to apply for temporary assistance.

Edited by Still_Small_Voice

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13 hours ago, Still_Small_Voice said:

People who are fully employed should not be getting this "stimulus" money.  If others are not fully employed or out of work they should be able to apply for temporary assistance.

And just how does one determine who is fully employed or not?

I had to do without last year because I had no clients for months. And I could not file for unemployment because I ran my own business.  So, I should be penalized for trying to benefit the economy by creating a business?  Yes, a small business often does not have the ability to file for unemployment benefits.  There's a variety of stuff I can't apply for.  I found this out last year.

Others also have a problem filing for unemployment.  Should they be penalized for being wise enough to build up some savings for such an occasion?  The only thing that saved me last year was that I sacrificed enough over the years of plenty to save up.  Now all that savings is gone.  It took me about 6 months to get back to normal.  And I'm finally getting back to building up my savings again.

So, just how are you going to determine "who really needs it?" 

I honestly believe that a rich person who gets a $1000 check will have no motivation to keep it.  They're not going to get all excited about it because it isn't all that much money to them.  And if a public request was announced, I think you'd be VERY surprised at just how many people will simply pull money out of their own pockets to help others in need.

I'd trust individuals to make value judgments about who really needs it because they are on the front lines, in the ditches so to speak.  A government agency?  They're far to detached to make such value judgments.  And considering the welfare abuse I've witnessed first hand, I'd rather choose the mistakes that honest, well-intentioned individuals make than the mistakes a government agency makes.

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Some anecdotes:

- My buddy owns a landscaping business.  He was telling me he got paycheck protection loans last year.  The deal was those loans would be forgiven as long as there were no layoffs/firings.  As the sole employee of his business, he didn't fire himself, and his loans were forgiven.

- My ward had people just funnel their stimulus money straight to the church.   One little old lady was quite upset she got one in the first place, and didn't even want to touch the thing out of fear that the govt would consider that income, and take away her social security.   Another person wanted to make a big political statement about what they were doing with the government "funny money". 

- My family is hardly rich, but we didn't want the stimulus and don't need it.   The first round funded one kid's high school graduation celebrations.  The second round is sitting in the bank waiting for someone to come up with something to spend it on.   If we get the third round currently being negotiated, we'll probably do home improvements.  We'll take a little and spread it around some local small businesses.

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The moral argument against federal stimulus is grounded in the realization of where stimulus money comes from: taxes. If only people who paid taxes were getting the stimulus then it would just be a tax break. Instead we have the federal government taking money from one group and giving to another. The analogy often used is imagine I found out that you're struggling financially so I reach in my pocket and give you $600. I tell Carb what's going on and he hands over $600 also. No one is objecting to this (until we find out you're the subject of the charity thread - but we can forego that discussion for now). Where it becomes morally wrong is when I go to Carb and tell him you're struggling financially, and he WILL give you $600 or I will forcibly take $600 from him to give you. The fact that it benefits you does not make it any less of a robbery. What suddenly makes it okay when I don't do it myself but instead vote for some faceless government to bully on my behalf?

The logistical argument against federal stimulus is the variance in cost-of-living across the nation. $600 will go a lot farther in Provo, UT than it will in New York City. 

Rapid inflation (also known as a "soft default" for government loans) penalizes saving. Similarly, income tax penalizes high wages, sales tax penalizes high spending, and property taxes penalizes ownership. Yet despite these penalties we still see wages, spending, and ownership. So there's a tradeoff. In the case of inflation, the economy can handle some, but you don't want so much that it stifles lending (if I loan you $100K today, I want to know that the 200K I get back in 30 years is worth more than the $100K I'm giving you now).

You've grouped UBI and stimulus together, but note that these are 2 different things. We used to have a few posters promoting universal basic income, but I haven't seen them for a while. Is UBI something you'd also like to discuss or do you want to keep this focused on stimulus?

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The strongest argument in favor of stimulus is that the government is morally obligated to pay restitution for the damages it caused. The ones in power shut down economies, so their budgets should reimburse businesses for their losses. The problem I see with this is that 1) it's already too late for many businesses. They're already closed. 2) How do you determine how much they're owed? Perhaps look at each business' quarterly filings from 2019 and pay them the difference? Note that this would be FAR more than is proposed by any stimulus legislation. 3) Where is the money coming from?!  Revenue raised in taxes of course - which means the government needs a strong, rebounding economy to rebound the economy!

Sorry government. You caused this mess, but I think you should just say "sorry" and give me a hug rather than try to set my broken arm.

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25 minutes ago, mordorbund said:

The strongest argument in favor of stimulus is that the government is morally obligated to pay restitution for the damages it caused. The ones in power shut down economies, so their budgets should reimburse businesses for their losses. The problem I see with this is that 1) it's already too late for many businesses. They're already closed. 2) How do you determine how much they're owed? Perhaps look at each business' quarterly filings from 2019 and pay them the difference? Note that this would be FAR more than is proposed by any stimulus legislation. 3) Where is the money coming from?!  Revenue raised in taxes of course - which means the government needs a strong, rebounding economy to rebound the economy!

Sorry government. You caused this mess, but I think you should just say "sorry" and give me a hug rather than try to set my broken arm.

Issue 4:  the federal government didn’t order the economy to shut down; (some of) the state governments did.  Why should Utah, which has basically been open for business for the last year and whose economy is humming along, be subsidizing the coastal states’ draconian measures?  If California or New Jersey feel their citizens deserve restitution, they are free to pass their own relief packages for their own residents.

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23 minutes ago, Just_A_Guy said:

Issue 4:  the federal government didn’t order the economy to shut down; (some of) the state governments did.  Why should Utah, which has basically been open for business for the last year and whose economy is humming along, be subsidizing the coastal states’ draconian measures?  If California or New Jersey feel their citizens deserve restitution, they are free to pass their own relief packages for their own residents.

In additional these Stimulus packages have a lot more then just the checks to citizens... Its a majority of pork and special interest spending that got authorized in the name of "helping those who are hurting" 

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I've been wondering just how much of this is "our money" just being returned, in a sense, and I would love someone to set me straight one way or the other on that.

I liked the first stimulus and it proved useful for us... we have had some emergency home repairs that needed to be paid for. 

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1 hour ago, Backroads said:

I've been wondering just how much of this is "our money" just being returned, in a sense, and I would love someone to set me straight one way or the other on that.

I liked the first stimulus and it proved useful for us... we have had some emergency home repairs that needed to be paid for. 


People will have to look at their own tax records to figure out how the stimulus compares to what they’ve paid in the past, I suppose.  I can say that for 2020, our family paid (after tax refunds) about $680 in federal taxes and got in the ballpark of $10K as stimulus.

The stimulus, in conjunction with some other developments, have been spectacular for our family—we’ve paid off nearly $30K in debt since January of 2020.  The proposed $1400/head stimulus that Biden has been taking about would be even better.  But I also know that this is going to have to be paid for someday; and that scares the bejeebies out of me.

But frankly, I’ve evolved to the position that the USA as we knew it is pretty much done; fiscal default (if not worse) is inevitable in our children’s lifetimes if not in our own; so we may as well take what we can, get while the getting’s good, and bunker up for what’s coming next.  If this government of the damned wants to keep handing out play money, I’m happy to use it to buy real-life goods for as long as there are vendors willing to accept it.

Edited by Just_A_Guy

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12 hours ago, Just_A_Guy said:

But frankly, I’ve evolved to the position that the USA as we knew it is pretty much done; fiscal default (if not worse) is inevitable in our children’s lifetimes if not in our own; so we may as well take what we can, get while the getting’s good, and bunker up for what’s coming next.  If this government of the damned wants to keep handing out play money, I’m happy to use it to buy real-life goods for as long as there are vendors willing to accept it.

I had considered this years ago.  Then I thought better of it.

But now with it getting more and more in my face, it seems that there is a time to Pull a Capt. Mornoni, and a time to pull a Lachoneus.

Edited by Carborendum

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I'm not smart, and I haven't really read much on the topic, and what I do read is full of economists disagreeing with each other.   That said:

Isn't relying on inflation a big part of the reasoning behind debt and deficits?  Meaning, as long as we've got 2-3% inflation and an economy that slightly outperforms it, then the eternally growing pile of debt is losing value.   In the '80's, we agonized and forecasted doom over our billions, and the first trillion-dollar budget was passed.   In the decades that followed, nobody cares about millions any more, a billion here and a billion there doesn't raise eyebrows, the trillions are worrying folks now.

So, as long as we keep inflation going AND the economy outpacing it, today's trillions of debt get smaller and smaller in real-world value.  You have to look at federal debt as a % of GDP, not gasp at the word "trillions".  That paints a different picture - still concerning, but not without precident:

How) Will We Pay Back the Federal Debt? | Econofact

One would also think a good 2020 chart showing debt in inflation-adjusted numbers would be useful, but I can't find one that isn't 5+ years old.

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1 hour ago, NeuroTypical said:

I'm not smart, and I haven't really read much on the topic, and what I do read is full of economists disagreeing with each other.   That said:

Isn't relying on inflation a big part of the reasoning behind debt and deficits?  Meaning, as long as we've got 2-3% inflation and an economy that slightly outperforms it, then the eternally growing pile of debt is losing value.   In the '80's, we agonized and forecasted doom over our billions, and the first trillion-dollar budget was passed.   In the decades that followed, nobody cares about millions any more, a billion here and a billion there doesn't raise eyebrows, the trillions are worrying folks now.

So, as long as we keep inflation going AND the economy outpacing it, today's trillions of debt get smaller and smaller in real-world value.  You have to look at federal debt as a % of GDP, not gasp at the word "trillions".  That paints a different picture - still concerning, but not without precident:

How) Will We Pay Back the Federal Debt? | Econofact

One would also think a good 2020 chart showing debt in inflation-adjusted numbers would be useful, but I can't find one that isn't 5+ years old.

Hmm.  I wonder.  I don’t hear the congresscritters (or their constituents) saying “it’s OK, by the time the debt comes due it won’t really be that much money”.  And really, if they openly said that, no one would ever lend the government another cent.  I don’t think we are really thinking of how to pay our debt back at all; we’re just thinking of what we want now and why we are entitled to have it.  Even more problematic than the debt itself, I think, are the social and political mentalities and realities that allow it to continue to build. 

Since WW2 we’ve had a party that at least paid lip service to the idea of fiscal restraint; but I think the newly emergent populist wing of the GOP and their support for massive COVID relief packages—and the abject failure of classical conservatives to say “wait a minute, we’re freakin’ broke, how are we going to pay for this?”—is a potent indicator of just how entranced even the Republicans have become with the notion of voting themselves funds out of the public purse.

Edited by Just_A_Guy

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26 minutes ago, Just_A_Guy said:

Hmm.  I wonder.  I don’t hear the congresscritters (or their constituents) saying “it’s OK, by the time the debt comes due it won’t really be that much money”.  And really, if they openly said that, no one would ever lend the government another cent.  I don’t think we are really thinking of how to pay our debt back at all; we’re just thinking of what we want now and why we are entitled to have it.  Even more problematic than the debt itself, I think, are the social and political mentalities and realities that allow it to continue to build. 

Since WW2 we’ve had a party that at least paid lip service to the idea of fiscal restraint; but I think the newly emergent populist wing of the GOP and their support for massive COVID relief packages—and the abject failure of classical conservatives to say “wait a minute, we’re freakin’ broke, how are we going to pay for this?”—is a potent indicator of just how entranced even the Republicans have become with the notion of voting themselves funds out of the public purse.

Yes.  I have to recall the words of my friend of many years ago who said, "Whelp.  They won.  So, I have to go with the way the votes went."

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I’m not so curious about inflation as I am about the effects of stimulus on large and small scale and how it effects our lives. I understand there will be some around if inflation, but do the benefits of stimulus out way the cons?

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17 minutes ago, Fether said:

I’m not so curious about inflation as I am about the effects of stimulus on large and small scale and how it effects our lives. I understand there will be some around if inflation, but do the benefits of stimulus out way the cons?

You probably know this, but one of the traps in evaluating any government expenditure is that we can clearly see the “good” that is done by money government spends.  It’s a lot harder to see and quantify the “good” that those same dollars would have done in the hands of their original owners, the taxpayers. No one counts the investments that aren’t made, the new businesses that don’t open, the meals and hotel rooms and travel tickets that aren’t purchased, the gifts that aren’t given, the home renovations that aren’t undertaken, and so on.  And what’s even more sinister is that these opportunity costs are, to a very great degree, being borne by a generation that is still children.  Millennials are fond of pointing out how the Boomers screwed then over economically—but they’re turning around and demanding we do the same thing to the next generation so that they, the millennials, can get theirs.

Take a look at the second link I put in my previous post, and bear in mind that the link is nine years old and the national (“household”) debt has doubled since then.

Edited by Just_A_Guy

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