Two Thoughts on the Economy

1. For reasons unknown, I have begun to read Rush Limbaugh's stimulus proposal. I haven't gotten far, but in the beginning he sets up a sharp contrast between the "Keynesian" (i.e., Democratic) solution of funding "shovel-ready" projects and the "supply-side" (Republican) solution of tax cuts.

My knowledge of economics puts me in a better place to discuss the Republicans' proposal than the Democrats'. Tax cuts will stimulate the economy to some degree - the more progressive the tax cut, the more short-term relief is brought about. This is because poor people spend the highest percentage of their income, while wealthier people tend to save/invest it. So tax cuts to middle- and upper- class folks will largely be saved, or used to pay down individuals' debts.

So my question is - assuming (and I think I can do so safely) that the average American currently has ballooning debt, is it possible that the tax cut route might actually be better, in that private debts (mortgages, credit cards) could represent a coming crisis that needs to be averted now? Just a thought.

(And I should add, it's entirely possibly that such a proposal wouldn't actually result in Americans making a net payment on their debt, or at least the right Americans paying down the right debts.)

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2. This second thought it much more political than economic, but it's something to watch for: the Republicans need to carve out a voice ASAP if they want a shot at the 2010 elections. So they're going to have to find ways to oppose the Democrats. Thus far, they haven't had a lot of luck.

But with the economy being the number one issue, here's an argument you're going to hear more and more as election day comes ...

Let's say you're God. Let's say unemployment is currently 8%. Let's say without action, it will be 14%, with the Republicans' stimulus it will be 12%, and with Obama's stimulus it will be 10%.

So the Democrats say, "Wow, look at that, we saved a whole lot of jobs!"
So the Republicans say, "Wow, look at that, they didn't create any jobs. In fact, they lost jobs!"

I guess it would have been a whole lot easier for me to say "There's going to be an upcoming argument about jobs saved vs. jobs created." Oh well, you get the point.