{"id":107,"date":"2009-04-01T08:09:29","date_gmt":"2009-04-01T15:09:29","guid":{"rendered":"http:\/\/lexiconic.net\/wheatfromthechaff\/04-2\/wheat-from-the-chaff-a-recent-rant-with-a-friend"},"modified":"2011-07-13T21:47:31","modified_gmt":"2011-07-14T04:47:31","slug":"wheat-from-the-chaff-a-recent-rant-with-a-friend","status":"publish","type":"post","link":"http:\/\/lexiconic.net\/wheatfromthechaff\/archives\/107","title":{"rendered":"A Recent Rant With a Friend"},"content":{"rendered":"<div id=\"wp_fb_like_button\" style=\"margin:5px 0;float:none;height:30px;\"><script src=\"http:\/\/connect.facebook.net\/en_US\/all.js#xfbml=1\"><\/script><fb:like href=\"http:\/\/lexiconic.net\/wheatfromthechaff\/archives\/107\" send=\"false\" layout=\"standard\" width=\"450\" show_faces=\"false\" font=\"arial\" action=\"recommend\" colorscheme=\"light\"><\/fb:like><\/div><div id=\"content\">\n<div class=\"blog\"><!-- back and forward --><\/p>\n<div class=\"blogbody\">\n<p><span style=\"font-family: Calibri; font-size: medium;\"><em>Here&#8217;s a recent rant that I had with a friend of mine over the imprudence of lowering taxes in a time of recession:<\/em> <\/span><\/p>\n<hr \/>\n<p><span style=\"color: #cc0033; font-family: Calibri; font-size: medium;\"><em>&#8220;&#8230;individual citizen or corporation, want good value for their dollar.&#8221;<\/em><\/span><\/p>\n<p><span style=\"font-family: Calibri; font-size: medium;\">I certainly agree&#8230; except if &#8220;good value for their dollar&#8221; means the government must cut back during a time of a recession. If a government tries to act like a household or company in this situation, then it commits the fallacy of composition: the government &#8211; which acts for the whole &#8211; erroneously tries to act like an individual unit such as a household or small business. This adds (massively) to the contraction, and sends the entire country into a much faster tailspin. This is exactly what happened to Canada and the USA from 1929 to 1933, and it made a bad situation into a disaster. This is why Hoover and RB Bennett were so reviled: they didn&#8217;t understand the difference between micro-economic business planning and macro-economic government policy. I saw some corporate-toadying homily from the Fraser Institute in today&#8217;s Sun, and it repeated almost verbatim Hoover&#8217;s speeches at the beginning of the Depression. It&#8217;s like they&#8217;ve never read a book on economic history. <\/span><\/p>\n<p><span style=\"font-family: Calibri; font-size: medium;\">In our current case, simply lowering business taxes won&#8217;t be enough. The prime consideration in any business model (and when a business applies for a loan) is expectation of profit. If nobody is going to buy the goods or services that your investment will offer, lower taxes or lower interest rates will be of little help. That&#8217;s exactly what they found in the Great Depression. In Canada, where 56% of our GDP is generated by consumer spending (67% in the USA), the key is consumer spending. It&#8217;s that spending that will (re-)pay the vast majority of one&#8217;s investment. And if it&#8217;s not there, corporate tax cuts will simply lead to a gutting of the treasury. [Tax cuts, and especially targeted tax cuts, can certainly work, but usually when consumer confidence &#8211; aka consumer spending &#8211; is already strong.] <\/span><\/p>\n<p><span style=\"font-family: Calibri; font-size: medium;\">Some continue to believe that personal tax cuts will boost consumer spending. But again, that doesn&#8217;t work in a recession. When times are tough, people tend to use their tax cuts for savings or paying off debt. (This is the logic of the household I mentioned earlier.) Savings and paying down debt are good things during a boom, but useless when the country as a whole is looking for stimulus. And if you&#8217;re unemployed, tax cuts won&#8217;t matter anyway. <\/span><\/p>\n<p><span style=\"font-family: Calibri; font-size: medium;\">By the way, lower corporate income taxes for the largest companies &#8211; courtesy of Chretien, Martin and Harper &#8211; have not improved productivity or investment in Canada. In fact, machinery investment has dropped since 2000. But CEO bonuses and shareholder dividends haven&#8217;t hurt! <\/span><\/p>\n<p><span style=\"font-family: Calibri; font-size: medium;\">Cheers,<br \/>\nColin<\/span><\/p>\n<div class=\"posted\">Posted by <a href=\"mailto:cwelch@lexiconic.net\">Colin Welch<\/a> at 9:15 PM<br \/>\n<em>Edited on: Monday, April 13, 2009 4:29 PM<\/em><br \/>\nCategories: <a href=\"http:\/\/lexiconic.net\/wheatfromthechaff2\/archives\/cat_bcpolitics.html\">BC Politics<\/a>, <a href=\"http:\/\/lexiconic.net\/wheatfromthechaff2\/archives\/cat_canadianpolitics.html\">Canadian Politics<\/a>, <a href=\"http:\/\/lexiconic.net\/wheatfromthechaff2\/archives\/cat_theeconomy.html\">The Economy<\/a><\/div>\n<\/div>\n<\/div>\n<p>&nbsp;<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Here&#8217;s a recent rant that I had with a friend of mine over the imprudence of lowering taxes in a time of recession: &#8220;&#8230;individual citizen or corporation, want good value for their dollar.&#8221; I certainly agree&#8230; except if &#8220;good value for their dollar&#8221; means the government must cut back during a time of a recession. [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-107","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/posts\/107","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/comments?post=107"}],"version-history":[{"count":3,"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/posts\/107\/revisions"}],"predecessor-version":[{"id":716,"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/posts\/107\/revisions\/716"}],"wp:attachment":[{"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/media?parent=107"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/categories?post=107"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/lexiconic.net\/wheatfromthechaff\/wp-json\/wp\/v2\/tags?post=107"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}