Wednesday, December 10, 2008

Japan 1999 Economic Handout Stimulus Program Increased GDP 0.1%

See the Telegraph November 17, 2008 article by Julian Ryall “Japan's economic stimulus package 'a waste of money' “
■ “The Japanese government's plan to rescue the domestic economy by handing out Y12,000 (£84) to every adult in the country has been dismissed as a pointless waste of money. “
■ “it has provoked comparisons with a 1999 decision to issue Y700 billion in coupons to boost domestic consumption and, theoretically, inject new life into the economy”
■ "Kanagawa Prefecture Governor Shigefumi Matsuzawa said ‘The coupon handout program increased individual consumption in the total gross domestic product by just 0.1 percent’,"

Obama Should Make Permanent the Bush Tax Rate Cuts

I know many Lagunans who were involved in slow growth demonstrations and concerned about overdevelopment in the late 1980s. Many of these folks now express concern about the current economic conditions.

More than a year ago, the housing bubble burst and now the mortgage back securities, particularly those containing sub-prime mortgages, are now considered toxic financial instruments. Many including President-elect Barack Obama are calling for a stimulus package based upon the Keynesian theory that if the government flew over the country dispensing money it would lead to economic growth. The Keynesian stimulus has helped many politicians, but has failed each and every time it has been tried.

What has worked? What was it that caused do-gooders to march in the streets aghast that the economy was growing too fast? Why it was the Reagan tax rate cuts. Faced with stagflation, both high unemployment and high inflation, under President James Earl Carter Jr., President Ronald Reagan enacted 25% across the board reduction in Federal income taxes.

For those paying attention, tax rate cuts again spurred economic growth more recently. Terrorists deliberately tried to undermine the United States economy attacking the World Trade Center on September 11, 2001. How well did the terrorist do? During the three-and-a-half months between 9/11 and Christmas, nearly a million Americans lost their jobs.

Previously, responding to the dot com bubble bursting, President George W. Bush got a significant bipartisan majority in Congress to pass tax rate cuts. It led to a substantial period of economic growth.

I am always amazed at folks who profess to love employees while reviling employers when you cannot have employees without having employers. I have an advantage having an MBA from UCLA, but they should take an economic or business course. They would find out that successful businesses plan ahead and do better when tax policy is stable.

The recent financial panic meltdown has few good explanations. One might be that as the Bush tax rate cuts are scheduled to expire in 2011, as we got closer to that date more instability would occur.

If improving the economy and employment is the goal, as opposed to pandering for votes, the best advice for President Obama’s administration is to make permanent the Bush tax rate cuts.