We Need a Stimulus package

[adrem]

At time of posting it looks like momentum is building in Washington for a new Stimulus package for Americans. They seem to have a different set of economists over there that believe that the best approach when you are in or approaching a recession is NOT actually to increase direct and indirect taxes. Instead they suggest the best way out of a recession is through tax rebates and economic stimulus to drive growth back into the economy.

I can more clearly see their logic than ours to be honest !

Any views on switching tack completely and pushing an "economic stimulus" budget??

Obviously not going to happen but I'd be interested in people's views on this type of approach - it hasn't been suggested by any of the parties but it is the approach adopted in the US and apparantly Alistair Darling is saying that the UK will adopt the same approach to drive their way out of recession.

Normal argument against is that it's inflationary but in the face of a recession - something inflationary is exactly what's needed !

[20000miles]

At time of posting it looks like momentum is building in Washington for a new Stimulus package for Americans. They seem to have a different set of economists over there that believe that the best approach when you are in or approaching a recession is NOT actually to increase direct and indirect taxes. Instead they suggest the best way out of a recession is through tax rebates and economic stimulus to drive growth back into the economy.

I can more clearly see their logic than ours to be honest !

Any views on switching tack completely and pushing an "economic stimulus" budget??

Obviously not going to happen but I'd be interested in people's views on this type of approach - it hasn't been suggested by any of the parties but it is the approach adopted in the US and apparantly Alistair Darling is saying that the UK will adopt the same approach to drive their way out of recession.

Normal argument against is that it's inflationary but in the face of a recession - something inflationary is exactly what's needed !

Oh dear...

The Keynesian menace is back. Forget about the fact that the Great Depression and the Japanese saga were loaded with fiscal stimuli (the Japanese spent 100 trillion yen in fiscal packages), it doesn't work.

And what's the dilly-oh with inflation being a good thing? What's the problem with falling house, food and oil prices?

[seabhac siulach]

An effective (tax-neutral) stimulus could have been given to the economy simply by reducing VAT rates and subsidising this with new 'carbon' taxes, e.g. taxes on carbon producers (power stations, petrol companies, concrete manufacturers (or would this be too close to the bone for certain backers of FF?), etc.). This would also have been more socially equitable as VAT is a flat tax (much like levies!) and so impacts more on those on lower salaries. It would also have had the effect of lowering CO2 emissions by directly penalising those producing CO2.

[adrem]

Not the first time I've been called Keynesian - poor oul Sandar had to spend ages explaining what it meant !!

But does that mean that the UK and US government stimulus plans are doomed to fail or at least doomed to ensuring that the economies don't get out of recession for decades? If it was that clear cut - why would they do it?

Inflation destroys value - value destruction destroys confidence and without confidence we cannot move forward

[Question R24U]

The Stern report has stated (in far more words) that there is plenty of cash to be made from the Green Economy. I would love to see how far can we go with the R&D to see what we can make marketable.

[FutureTaoiseach]

We must not repeat the tax and spend policies that preceded 1987. FF told the PDs in 1989 that there was no room for tax-cuts, but then was forced to introduce them, for the first time in 20 yrs. Privatise the semi-states, hospitals and schools, and give the hard working plain people of Ireland back more of their own money. People - not government - know best how to spend their money. Big Government is bad government. One side advantage of a stimulus package is that it would provoke a row with Brussels in the run up to Lisbon II.

[factual]

A stimulus package is needed to get us out of recession. As Keynes noted an economy is not self correcting towards zero unemployment. So government spend is needed.

If you tax and spend using progressive tax you take 1 euro from a rich man (who would otherwise spend it on imports) and give it to a teacher or other worker who has a higher marginal propensity to consume. That teacher then spends it and it goes into someone elses hands and so on indefinitely. This multiplier effect means that government spending can get us out of a recession. In fact if the marginal propensity to consume is 0.9 (a person who gets a euro spends 90c) then the output effect of the government spending 1 euro is 1/(1-0.9)=10!

This can also be more expansionary if done via debt.

However the EU constrains us. It has stated that we cannot run a budget deficit over a certain level.

Further, the fact we are in the Euro means we cannot devalue the currency, which also helps to stimulate the economy.

Sinn Féin's scepticism about the European union, about the Euro zone, and about private sector banking, is proving correct.

[grassroots]

Sinn Féin's scepticism about the European union, about the Euro zone, and about private sector banking, is proving correct.

Factual,
I thought you SF were pro European.
SF has traditionally liked banks as well. They have provided a usual source of money for you.
Are you in favour of nationalising the banks, including recapitalising them to acceptable regulatory standards after the assets have been written down to the correct level?. This would require about 10bn of taxpayers money by the way. If so would the auld IRA pinsin fund take a stake?

[floatingvote]

A stimulus package is needed to get us out of recession. As Keynes noted an economy is not self correcting towards zero unemployment. So government spend is needed.

If you tax and spend using progressive tax you take 1 euro from a rich man (who would otherwise spend it on imports) and give it to a teacher or other worker who has a higher marginal propensity to consume. That teacher then spends it and it goes into someone elses hands and so on indefinitely. This multiplier effect means that government spending can get us out of a recession. In fact if the marginal propensity to consume is 0.9 (a person who gets a euro spends 90c) then the output effect of the government spending 1 euro is 1/(1-0.9)=10!

This can also be more expansionary if done via debt.

.

I've always been a big fan of Keynes and also of the multiplier, but the fact that the Irish multiplier probably exceeded 1.0 for the past 4/5 years means that we really do not need to make this more expansionary!!
It could however be a good time to try and get our infrastructure up to speed, although I'd fancy doing that via incentivising or decentivising those newly unemployed back to work on such projects.

[BodyofEvidence]

Oh dear...

The Keynesian menace is back. Forget about the fact that the Great Depression and the Japanese saga were loaded with fiscal stimuli (the Japanese spent 100 trillion yen in fiscal packages), it doesn't work.

And what's the dilly-oh with inflation being a good thing? What's the problem with falling house, food and oil prices?

I think the consensus is tht the GD was caused by a liquidity crisis that eventually went away in ww2

Deflation is as bad if not worse than inflation. Modest inflation is a sign of a good growing economy.