Posted by
Old Retired Fart on Tuesday, December 30, 2008 7:16:15 PM
I've been writing my elected representatives this morning to complain about the proposed economic stimulus package (and I suggest you do the same). My basic tack has been that increased government spending will not help the economy recover. It never has in the past, and there is no reason to believe to that it will in this case. There are still some Kensians floating around out there who think we can spend our way out of this recession, but they are wrong and they are missing the cause of this particular downturn.
The United States over the past several decades has had one of the worst savings rates in the world. That is, as savings is normally measured. It is true that we, as a country, put less away in traditional savings than most any other country. But...we have saved in a different way, by investing in common stocks and, more importantly, through the appreciation in value of our homes. After the recent unpleasantness, many folks now find themselves with no savings to speak of. The economy will not improve until these savings are recovered. The spending plans proposed by the President elect will do nothing to improve this. This, more than anything else, is the cause of the continuing depth of this recession.
What might work? Well something to increase the savings rate quickly might help. Perhaps a policy that makes savings deposits tax exempt until they are withdrawn, coupled with a complete tax exemption on interest on savings. Perhaps the same treatment for investments by individuals. This is a type of targeted tax reduction that would directly lead to an economic recovery.
As usual, just my .02 worth.