6 October 2010 Archives

Why Stimulus Doesn't Stimulate

Robert Higgs published a thoughtful essay a few days ago in the Sacramento Bee. Higgs reminds us of a basic economic lesson that Obama has yet to learn: consumptive spending is not nearly as stimulative as investment spending. Higgs rightly cites a sharp decline in private investment as the reason for the economic downturn. Obama is compounding this cycle by perpetuating a feeling of uneasiness and uncertainty with his plans to raise taxes and regulations on business owners. And with Congress promoting only band-aid stimulus projects as the cure for the economy, we will unfortunately continue to have a long road ahead. Higgs writes,

If politicians truly wish to promote genuine, sustainable recovery and long-term economic growth, they should focus on actions that will contribute to a revival of private investment, not on pumping up consumption. In the most recent quarter, gross private domestic investment was still running at an annual rate more than 20 percent below its previous peak. Net private investment was fully two-thirds below the previous peak.

To bring about this essential revival of investment, the government needs to put an end to actions that threaten investors’ returns or create uncertainty that paralyzes the undertaking of new long-term projects.

Well said. The article in its entirety is a great read.

NY Income Drops

by | NEW YORK

Reuters reports a drop in the personal income of NY residents for the first time in 70 years:

“The recession put a 3.1 percent dent in the personal incomes of New York state residents, who endured their first full-year decline in more than 70 years, according to a report released Tuesday. Paychecks or net earnings tumbled 5.4 percent, while dividends, interest and rent slid 8.4 percent, to a grand total of nearly $908 billion, the state comptroller’s report said. Not only did New Yorkers’ personal incomes fall “almost twice” as much as they did in the nation as a whole, but they have yet to recover to pre-recession levels, Comptroller Thomas DiNapoli said.”

The situation is likely to worsen if higher taxes prevail in the next year. NY must cut spending and reconcile the public-private earnings divide if it wishes to see real economic recovery.

http://www.cnbc.com/id/39531849