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[bryant]

Paul Krugman, fearless economist, explains liquidity traps for the non-economists among us. Interesting stuff. He gets political towards the end, but I happen to think he’s mostly right. The extra few hundred bucks parents get on their taxes may make more of a difference than he claims, though.

Parenthetically, I am a bit baffled as to why more liberal commentators don’t address that aspect of the tax cut. It’s very hard to convince people that the tax cut mostly benefits the rich when you completely ignore the increase in the child credit. 400 bucks per child is not chump change. It is a pretty small percentage of the total cut, but that doesn’t mean middle and lower class parents won’t notice it, and you just look like a complete idiot if you pretend it doesn’t exist.

Back to the liquidity trap. Basically, the liquidity trap is what happens when you run out of room to lower interest rates. Suddenly, you’re short on ways to encourage people to spend money. This makes it hard to kickstart the economy. It happened to Japan, and there are signs we may be close to it; the EU is certainly close to it.

Krugman explains it way better than I do, anyhow.

Comments

[foxmagic.livejournal.com]

Aww, ya unfriended me! Was it something I said? :)

(yeah, I know that friends lists are just a LJ feature and have nothing to do with whether you actually like someone or not, but I'm just curious! I figure I wasn't writing the sort of stuff that you found interesting. :)

[huaman.livejournal.com]

You wrote:


Parenthetically, I am a bit baffled as to why more liberal commentators don’t address that aspect of the tax cut. It’s very hard to convince people that the tax cut mostly benefits the rich when you completely ignore the increase in the child credit. 400 bucks per child is not chump change. It is a pretty small percentage of the total cut, but that doesn’t mean middle and lower class parents won’t notice it, and you just look like a complete idiot if you pretend it doesn’t exist.


For some reason, it's not popular to comment on a tax change that benefits "the poor" more than "the rich." I forget offhand exactly how the table breaks down for the child tax credit, but the full amount -- $600 last year IIRC -- is only available to the lower income tax brackets, and you get a smaller one if you have an AGI over I think around $40K a year, and nothing after somewhere around $75K I think it is. So realistically, there are probably a good number of taxpaying parents who don't get the full credit no matter what, and some who get no tax credit for having kids at all -- so while the media keeps saying "Parents are going to get $400 per kid!" that's a limited number of lower-income parents.

Since the lower-income parents will get more in terms of actual dollars (which will also be a larger chunk of change in relative terms, to a lower wage-earner), I do think it's actually fairly reasonable to conclude that the people who'll probably get the bulk of the money from such a credit aren't going to be somehow jumpstarting the economy with their spending on kids' clothes or bills at large.

And heck, here in CA that money would only end up going to pay higher state, local, and sales taxes anyway. ;-)Hard to see how that will do any economy-boosting.

[bryant]

Yeah, I just had an overloaded friends list. I have no animosity towards foxes. :)

[foxmagic.livejournal.com]

Whew. :)

(By the way, you know about LJ friends lists, don'tcha? They can really help make a large friends list manageable!)

[eyelessgame.livejournal.com]

Abby -- can't fault you for missing the same thing Bryant did (they removed the per-child tax credit increase unless you make >$26K) but your numbers are off -- you get the full $600 (well, $1000 now) per child till you hit somewhere around $100K, then it starts to phase out. That's not "lower-income" by anyone's measure.

Assuming you have a mortgate and are married, anyway. I suspect I qualify as upper-middle-class and I got most of the $600 last year (and will get most of the $400 in a month or two).

But I'm pretty much putting it under the mattress till the kids need it for college. Putting it into the market is just throwing ten percent a year down the toilet. I'm not investing anything right now; the economy sucks.