Tag Archives: stimulus

(Revised) China’s Stimulus Package for Growth

In the past few months, the market focus has been on the Federal Reserve’s exit strategy and the slowdown of China’s economic growth. Regarding the latter one, the world-second largest economy grew at 7.4% in the first quarter, a level significantly below the double-digit growth many years ago and the 7.7% growth last year.

Since the country has set a target of 7.5% economic expansion for 2014, the below-expectation performance triggered further concern about its growth momentum. In response to that, China’s State Council, the government’s executive body, unveiled a stimulus package in early April to boost growth, including additional spending on railways, upgraded housing for low-income households, and tax relief for small businesses.

Although the package is considered as a mini one compared to the four trillion yuan ($650 billion) program rolled out in late 2008 amid the global financial crisis, it would still impact its overall economy in many ways.

Stimulus 1: Additional Spending on Railways

The government would further develop infrastructure through accelerated railway construction, particularly in the nation’s central and western regions, and more aggressive financing. Some operations in the public interest would be subsidized and 150 billion yuan ($24.6 billion) in bonds would be offered by the government to finance construction for the railways. Relatively, the stock prices of companies in the railway sector rallied, as shares of China Railway Group surged 5.1% and China Railway Construction Corporation’s shares jumped 7.2%.

Personally, I think the spending will have a double-sided effect. Positively, tremendous infrastructure construction will boost growth effectively, and the emphasis on development in the central and western region will lead to more balanced economic landscape across the country. Negatively, as China is undergoing a significant transition from being overly dependent on investments and exports to relying more on domestic consumption, the massive government-led investment project might impede structural reform, and the increasing credit along with financing might pose additional risk in the credit market.

Stimulus 2: Upgraded Housing for Low-Income Households

The government would also spend more on slum clearance and upgrade of poorer urban areas. It added that the China Development Bank, a lender for key government policy projects, would set up a special arm to issue bonds to support new homes.

In my view, this measure could be a complement to the railway construction because of its focus on ordinary people’s well-being. It is a tradition that Chinese people care a lot about their housing and treat it as one of the most important measures of their living standard. If the housing upgrade can be implemented effectively, it could ease social instability and stimulate domestic consumption in the mid- to long-run.

Stimulus 3: Tax Relief for Small Businesses

The government would extend existing tax breaks to small businesses until the end of 2016 and raise the threshold for taxing smaller businesses, which have been struggling as economic growth slows.

I do believe that small businesses will benefit from decreasing tax burden, but this measure might not address their problem radically, which is largely due to the lack of financing. State-owned banks mainly offer loans to large, state-owned enterprises, putting small and medium businesses in a significant disadvantage in market competition. So in addition to regulating state-owned banks, the incorporation of private capital for lending and in-depth financial reform is also indispensable.

In conclusion, as the market force is set to play a fundamental role in the overall economy, it is the quality rather than the quantity of growth that should be strengthened. Therefore, the new leadership should be committed to structural reform with emphasis on wealth increases of ordinary people so as to unleash domestic consumption and underpin growth stability.

China’s Stimulus Package for Growth

In the past few months, the market focus has been on the Federal Reserve’s exit strategy and a slowdown of China’s economic growth. Regarding the latter one, China’s economy is expected to grow at somewhere around 7% in the first quarter, a level significantly below the double-digit growth many years ago and the 7.7% growth last year.

Since the country has set a target of 7.5% economic expansion for 2014, the first-quarter performance triggered further concern about its growth momentum. In response to that, China’s State Council, the government’s executive body, unveiled Wednesday a stimulus package to boost growth, including additional spending on railways, upgraded housing for low-income households, and tax relief for small businesses.

Although the package is considered as a mini one compared to the four trillion yuan ($650 billion) program rolled out in late 2008 amid the global financial crisis, it would still impact the overall economy in many ways.

Stimulus 1: Additional Spending on Railways

The government would further develop infrastructure through accelerated railway construction, particularly in the nation’s central and western regions, and more aggressive financing. Some operations in the public interest would be subsidized and 150 billion yuan ($24.6 billion) in bonds would be offered by the government to finance construction for the railways. Relatively, the stock prices of companies in the railway sector rallied, as shares of China Railway Group surged 5.1% and China Railway Construction Corporation’s shares jumped 7.2%.

Personally, I think the stimulus will have a double-sided effect. Positively, tremendous infrastructure construction will boost growth effectively, and the emphasis on development in the central and western region will lead to more balanced economic landscape across the country. Negatively, as China is undergoing a significant transition from being overly dependent on investment and export to relying more on domestic consumption, the massive government-led investment project might impede structural reform, and the increasing credit along with financing might pose additional risk in the credit market.

Stimulus 2: Upgraded Housing for Low-Income Households

The government would also spend more on slum clearance and upgrade of poorer urban areas. It added that the China Development Bank, a lender for key government policy projects, would set up a special arm to issue bonds to support new homes.

I think this measure could be a complement to the railway construction because of its focus on ordinary people’s well-being. It is a tradition that Chinese people care a lot about their housing and treat it as the most important measure of their living standard. Despite that the implementation of housing upgrade is yet to see, this proactive approach could ease social instability and unleash the potential of domestic consumption in the mid- to long-run.

Stimulus 3: Tax Relief for Small Businesses

The government would extend existing tax breaks to small businesses until the end of 2016 and raise the threshold for taxing smaller businesses, which have been struggling as economic growth slows.

Personally, I do believe that small businesses will benefit from decreasing tax burden, but this measure cannot address their problem radically, which is due to the lack of financing. So the government should also accelerate the financial-sector reform by incorporating private capital and diversifying lending channels for small businesses.

[Revised] Lies, Damned Lies, And The Wall Street Journal

I never, ever have seen media this way. It’s almost indescribable. Making up stories, refusing to run real stories. It’s making themselves look like utter fools. There’s no journalism, there is no media. There’s pure, full-fledged advocacy here. – Rush Limbaugh

I’ve joked about the WSJ misrepresenting facts that don’t suit its ideology in the past, but what they think they can get away with these days is simply not funny anymore. Let me present to you two recent examples of exceptionally poor journalism in the Journal. One is an article on CBO and the minimum wage, the other on the 2009 stimulus bill. I’ll take them in turns.

As you’ve probably noticed, CBO’s estimates regarding the impact of raising the minimum wage to $10.10 are making the rounds (even on our class blog). Here’s what the Journal has to say about this:

CBO estimated that President Obama’s latest proposal—$10.10 by 2016 from $7.25 today—could cost half a million Americans their jobs…

the CBO estimate [stated that] that 16.5 million workers would get a raise, and that some of those would therefore climb above the federal poverty line…

“many low-income workers are not members of low-income families”…

overall real income would rise by $2 billion,” says the CBO study. That’s out of an economy of $16 trillion…

President Obama is pitching a higher minimum wage as a matter of economic justice […] as the CBO report shows, for many of the poor it will merely push them out of the job market and even deeper into poverty. (emphasis added)

Sounds pretty bad, doesn’t it? The minimum wage will impoverish the United States! And that’s coming from a “Democratic-run budget shop” such as CBO! That’s one devastating report, huh?

Except that when you look at the actual CBO publication, you’ll notice that it’s not just about 500,000 people (potentially) losing their jobs. It’s also about 900,000 people being lifted above the poverty line on net (“some of those”, indeed). So CBO isn’t saying that raising the minimum wage is a crazy idea, and that liberals are really, really stupid for proposing it. It’s saying that there is a trade-off involved. It’s also saying that all told, the total number of people below the poverty line would decline!

All told, there are pros and cons to raising the minimum wage, and we could have a sensible debate about it. That is, if the WSJ wasn’t actively trying to only tell half the story. I’m just waiting for them to change their slogan to ‘fair and balanced‘.

The piece on the stimulus bill is right along the same lines (for a much better discussion than the Journal has to offer, I refer you to our class blog):

The $830 billion spending blowout was sold by the White House as a way to keep unemployment from rising above 8%. But […] 2009 marked the first of four straight years when unemployment averaged more than 8%…

The Obama White House had been egged on by liberal economists like Paul Krugman, who in November of 2008 recommended a stimulus of at least $600 billion…

Those stupid, stupid liberals again, getting their economics all wrong. Except that Krugman has said and continues to say that the stimulus should have been bigger. That’s what proposing a minimum means, you see!

Also, what’s this about 8% unemployment, and how it’s related to stimulus being a big, big failure? Let’s take a look:

This clearly shows that stimulus failed, right? If you can’t see it, you should stop questioning right-wing doctrines, you liberal ignoramus don’t worry: it’s not there. That graph shows no counterfactual whatsoever. There’s no way to infer from this what unemployment would have been like without the stimulus.

I think unemployment would’ve been much higher. I think so because there are models that predict this. I think so because there’s empirical evidence for it. But hey, estimating this stuff is difficult. If you’re using a different model, you might disagree. The Journal, however, simply claims that stimulus is nonsense without giving any justification whatsoever. That’s dishonest, cheap, and if you did it in a term paper, you’d get an F.

The Journal also criticizes that the stimulus money was spent on “stupid” things, such as education and studies about youth drug & alcohol abuse and college sex life. Feel free to form your own opinion about how stupid and pointless that was for a country that’s dealing with dismal PISA scores, 88,000 alcohol-related deaths per year and college rape on the rise.

But of all the nonsense expressed in those two articles, this takes the crown:

The failure of the stimulus was a failure of the neo-Keynesian belief that economies can be jolted into action by a wave of government spending. In fact, people are smart enough to realize that every dollar poured into the economy via government spending must eventually be taken out of the productive economy in the form of taxes. The way to jolt an economy to life and to sustain long-term growth is to create more incentives for people to work, save and invest. (emphasis added)

Not only is this a claim that Ricardian Equivalence is literally true, which is most certainly false. It’s also a claim that you want to encourage people to save more in a depressed economy, which is the complete opposite of what you should be doing (and would’ve cost you points on question nine of the midterm).

All this betrays a deep, deep ignorance of economic theory and evidence, and a lack of journalist ethics. Why are we reading the WSJ again?

Lies, Damned Lies, And The Wall Street Journal

I never, ever have seen media this way. It’s almost indescribable. Making up stories, refusing to run real stories. It’s making themselves look like utter fools. There’s no journalism, there is no media. There’s pure, full-fledged advocacy here. – Rush Limbaugh

I’ve joked about the WSJ’s policy of omitting and misrepresenting facts whenever they don’t suit its ideology in the past, but what the Journal thinks it can get away with these days is simply not funny anymore. I’ll focus on two recent articles, one on CBO and the minimum wage, the other on the 2009 stimulus bill. Let me take them in turns.

As you’ve probably noticed, CBO’s estimates regarding the impact of raising the minimum wage to $10.10 are making the rounds (even on our class blog). Let’s see what the Journal has to say about this:

CBO estimated that President Obama’s latest proposal—$10.10 by 2016 from $7.25 today—could cost half a million Americans their jobs…

the CBO estimate [stated that] that 16.5 million workers would get a raise, and that some of those would therefore climb above the federal poverty line…

“many low-income workers are not members of low-income families”…

overall real income would rise by $2 billion,” says the CBO study. That’s out of an economy of $16 trillion…

President Obama is pitching a higher minimum wage as a matter of economic justice […] as the CBO report shows, for many of the poor it will merely push them out of the job market and even deeper into poverty. (emphasis added)

Sounds pretty bad, doesn’t it? The minimum wage will impoverish the United States! And that’s coming from a “Democratic-run budget shop” such as CBO! That’s one devastating report.

Except that when you look at the actual CBO publication, you’ll notice that it’s not just about 500,000 people potentially losing their jobs. It’s also about 900,000 people being lifted above the poverty line on net (“some of those”, indeed). So CBO isn’t saying that raising the minimum wage is a stupid idea, and that liberals are really, really stupid for proposing it at all. It’s saying that there is a trade-off involved. It’s also saying that all told, the total number of people below the poverty line would decline! That means there’s pros and cons, and that we could have a debate about this. That is, if the WSJ wasn’t actively trying to only tell half the story. I’m just waiting for them to change their slogan to ‘fair and balanced‘.

The stimulus piece is right along the same lines (for a much better discussion than the Journal has to offer, I again refer you to our class blog):

The $830 billion spending blowout was sold by the White House as a way to keep unemployment from rising above 8%. But […] 2009 marked the first of four straight years when unemployment averaged more than 8%…

The Obama White House had been egged on by liberal economists like Paul Krugman, who in November of 2008 recommended a stimulus of at least $600 billion…

Those stupid, stupid liberals again, getting their economics all wrong. Except that Krugman has said and continues to say that the stimulus should have been bigger. That’s what proposing a minimum means, you see!

Also, what’s this about 8% unemployment, and how it’s related to stimulus being a big, big failure? Let’s take a look:

This clearly shows that stimulus failed, right? If you can’t see it, you should stop questioning right-wing doctrines, you liberal hack don’t worry: it’s not there. That graph shows no counterfactual whatsoever, and there’s no way to infer from this what unemployment would have been like without the stimulus.

I think it would’ve been much worse. I think so because there are models that predict this. I think so because there’s empirical evidence that that’s the case. But hey, estimating this is difficult. If you’re using a different model, you might disagree. But the Journal simply claims that stimulus is nonsense without giving any justification whatsoever. That’s dishonest, cheap, and if you did it in a term paper, you’d get an F.

The Journal also criticizes that the stimulus money was spent on “stupid” things, such as education and studies about youth drug & alcohol abuse and college sex life. Feel free to form your own opinion about how stupid and pointless that was for a country that’s dealing with dismal PISA scores, 88,000 alcohol-related deaths per year and college rape on the rise.

But of all the nonsense expressed in those two articles, this takes the crown:

The failure of the stimulus was a failure of the neo-Keynesian belief that economies can be jolted into action by a wave of government spending. In fact, people are smart enough to realize that every dollar poured into the economy via government spending must eventually be taken out of the productive economy in the form of taxes. The way to jolt an economy to life and to sustain long-term growth is to create more incentives for people to work, save and invest. (emphasis added)

Not only is this a claim that Ricardian Equivalence is literally true, which is absolute BS. It’s also a claim that you want to encourage people to save more in a depressed economy, which is the complete opposite of what you should be doing.

All this betrays a deep, deep ignorance of economic theory and evidence, and a lack of journalist ethics. Why are we reading the WSJ again?

 

(Revised) The Stimulus Bill 5 Years Later

After a speedy five years, the U.S. can finally look back at the $787 billion stimulus law that was passed 246 to 183, with just 7 Democrats voting against it. Whether you think the law has made a significant impact on the U.S. or not, our country is still in a hole of debt. Many experts thought that the law would help turn our debt around and decrease the unemployment rate. But after a speedy five years, we are still in tremendous debt and many believe our unemployment rate has decreased because Americans have stopped looking for jobs. Where exactly did the entire $787 billion go? Nevertheless, our government had a plan, which was to bring back our economy, and overall I believe it truly has…to an extent.

“The goal at the heart of this plan is to create jobs. Not just any jobs, but jobs doing the work America needs done: repairing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil,” President  Obama stated back in 2009.

The White House said on Monday that the law “saved or created an average of 1.6 million jobs a year for four years” and it raised the country’s GDP by between 2% and 3% from 2009 through mid-2011. “The spending ‘initiated’ 15,000 transportation projects and helped with the construction or improvement of nearly 6,000 miles of railway lines,” the Wall Street Journal mentions. Not only have we seen the stimulus money help in these types of areas, but at this point in time we have seen a have a long term positive effect on our economy. Our nation has seen a stabilization of mortgage debts, which is the biggest piece of household borrowing. We have also seen more Americans borrowing in general, whether it has been for education or cars. I believe many Americans are feeling more confident again especially with the rising stock prices.

That being said, there have also been some major improvements in the stock market as well. We have seen record highs through quantitative easing as investors have seemed to ignore earnings thanks to the Fed pumping the stimulus money into the market. But that is also something to look out for with our economy another year from now; if earnings don’t catch up, we are going to have a serious correction in the market.

The unemployment rate has been one of the major topics when looking back on the stimulus bill. The unemployment rate has dropped below 7% from a peak of 10% in October 2009, but that is also because so many people have stopped looking for work. Although the stimulus bill has provided many construction jobs to build infrastructure, many Americans have still been asking “where are the jobs?”

Where exactly are the new jobs? Besides construction, what are the other main jobs that have been created or saved? As far as I’m concerned, I don’t believe businesses have truly been hiring a surplus of Americans in recent years. Another problem that I believe was not taken into account was research, especially in the field of technology. The president stated back in 2009 that the money was also going towards promoting clean, alternative energy sources. However, “Republicans criticized a loan guarantee funded by the stimulus that went to Solyndra LLC, a solar-panel manufacturer that filed for bankruptcy in 2011. Unfortunately, now we see where other portions of the $787 billion went.

House Speaker John Boehner described the situation in a statement on Monday saying “a new normal of slow growth has set in.”

Maybe we have seen a new normal of slow growth set in, which has been the main cause to our ‘somewhat’ positive turnaround. But in retrospect, America went through a serious recession back in 2008. Something had to be done to help the country get back on its feet. Although the large stimulus law may not have solved all the country’s problems, the economy has indeed begun to move forward again.

The Stimulus Bill 5 Years Later

After a speedy five years, the U.S. can finally look back at the $787 billion stimulus bill that was passed 246 to 183, with just 7 Democrats voting against it. Whether you think the bill has made a significant impact on our country or not, our country is still in a deep hole of debt with some serious losses that experts thought the bill would help turn around. However, we have seen a positive effect on our economy overall. Was the bill the true determinate that helped decrease the unemployment rate? Nevertheless, our government had a plan, and that was to bring back our economy, which I believe it truly has, to an extent.

“The goal at the heart of this plan is to create jobs. Not just any jobs, but jobs doing the work America needs done: repairing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil,” President  Obama stated back in 2009.

The White House said on Monday that the law “saved or created an average of 1.6 million jobs a year for four years” and it raised the country’s GDP by between 2% and 3% from 2009 through mid-2011. “The spending ‘initiated’ 15,000 transportation projects and helped with the construction or improvement of nearly 6,000 miles of railway lines,” the Wall Street Journal mentions.

There have also been some major improvements in the stock market as well. We have seen record highs thanks to quantitative easing. Investors have ignored earnings because the Fed has been pumping the stimulus money into the market. But that is also something to look out for as we wait another year; if earnings don’t catch up, we are going to have a serious correction in the market.

The unemployment rate has been one of the major topics when looking back on the stimulus bill. The unemployment rate has dropped below 7% from a peak of 10% in October 2009, but that is also because so many people have stopped looking for work. Many Americans have still been asking “where are the jobs?” House Speaker John Boehner mentioned in a statement on Monday that “a new normal of slow growth has set in.”

Maybe we have seen as new normal of slow growth set in, which has been the main cause to our somewhat positive turnaround. But in retrospect, America went through a serious recession back in 2008. Something had to be done to help the country get back on its feet. Although the large stimulus bill may not have solved all the country’s problems, the economy has gotten back up on its feet.

The Immigration Stimulus Bill

 

Yesterday it was announced that John Boehner and the Republican Party will endorse a path to legal status for more than 11 million people living illegally in the United States. (WSJ – GOP Leaders Set to Embrace Legal Status for Immigrants) This announcement comes at a time when Republicans are struggling to gain support. Now more Americans than ever are claiming to be “liberal” and thus associating with the Demographic party. This move by the Republican’s is likely a desperate political ploy to get a piece of the Latino voting bloc, but regardless of the intention the support from the Republican’s will inevitably lead to big changes in the United States for illegal immigrants and the United States Economy.

 

The simple argument for opening immigration in the United States is the historical fact that our nation was built on immigration and that outlawing immigration is not only hypocritical but also fundamentally un-American. Regardless of your philosophical views of the previous argument, it is hard to debate the economic benefits of creating a path for illegal immigrants.

 

According to those who have seen the bill, the new policy would qualify 4.4-6.5 million illegal immigrants. University of Michigan economist Sherrie Kossoudji estimates that those who receive a “legal” status from this bill will see increased wages on average of 14-24% simply due to their new immigration status. This change in income will lead to a wave of consumer spending from immigrants in the US. According to the numbers done by Raul Hinojosa North American Integration and Development Center at UCLA, over a three year period this would increase net personal income in the United States $30-36 billion (about 75% of this income will be put to consumer spending) and will generate $4.5-5.4 billion in tax revenue. (IPC: An Immigration Stimulus: The Economic Benefits of a Legalization Program) This approximately $5 billion tax base growth won’t get us out of our deficit but it’s definitely a solid place for the Congressional Budget Office to start finding money.

 

Another economic argument in favor of legalizing these immigrants is the entrepreneurial growth they will provide to our economy. According to models done by economist Arlene Holen, if there were no green card constraints in 2008, foreign graduates with science and technology backgrounds would have contributed over $14 billion to our GDP and between $2.7-3.6 billion in tax payments. (IPC: An Immigration Stimulus: The Economic Benefits of a Legalization Program) Many of the top companies in the United States were founded by immigrants including Google, Yahoo!, Ebay, and Paypal to name a few. A report done by the Partnership for a New Economy found that immigrants are more than two times more likely than an American born citizen to start a company in the United States. (Huffington Post – 16 Iconic American Companies Founded by Immigrants) Such entrepreneurial spirit is what grew the American economy in the 19th and 20th century and can help our economy today.

 

I couldn’t find any specific numbers detailing the costs of the immigration change, but we do know that costs would come in the form of increased enforcement on the borders and on illegal immigrants already in the states, healthcare, and welfare. Although I don’t have any numbers to back this claim up I would believe that these cost changes would be rather minimum. Illegal immigrants are already taking advantage of our healthcare system, but now with legalization they will have an opportunity to pay into the system. Similarly, the rules outlining the immigration status change will require the recipient to be working, so the unemployment benefits will be limited. Overall I believe that the legalizing of illegal immigrants in the US will provide a nice economic stimulus for the US economy.

 

 

 

http://online.wsj.com/news/articles/SB10001424052702304419104579324532878523334?KEYWORDS=immigration

 

http://www.immigrationpolicy.org/just-facts/immigration-stimulus-economic-benefits-legalization-program

 

http://www.huffingtonpost.com/2013/04/22/american-companies-founded-by-immigrants_n_3116172.html