On Thursday, Ben Bernanke indicated that the Fed was prepared to do whatever necessary to ward off a recession, even if it meant cutting interest rates again. Many economists are speculating a .5% cut, but most anticipate a .25% cut.
I went to the Friday at the Beach Chamber event this morning and the guest speaker was Dr. Rick Harper, Director of UWF’s HAAS Center for Business Research and Economic Development. He was saying that a monetary policy is not what we need right now to spur the economy, we need a fiscal policy. He was saying that interest rate cuts are not what we need, but we need targeted tax cuts to lower and middle income groups, the large part of our consumer spenders.
This makes sense to me (although I am not against interest rate cuts). As a modern consumer, interest rate cuts don’t do me any good. If I refinanced a couple years ago to get money to spend on consumer goods, then my property value went down, and my taxes and insurance went up, how could I benefit from lower interest rates? I can’t refinance again, my property probably wouldn’t appraise, and even if it did, I’m still in debt up to my eyeballs from the last time I refinanced for more money because I couldn’t pay that debt down with my salary raise because that is going towards my raised insurance and tax bill.
Harper was saying that we need a targeted tax cut for the lower and middle income families. The lower and middle income families are the majority consumer spenders. If their bill outtake can be lowered, then they will have more free money to buy consumer goods. If they have more money to buy more consumer goods, then more people have jobs, etc., etc.
I wonder how much of a tax cut we would need to see a large-scale economic effect.
As a side note, I do see how interest rate cuts can benefit the small business. I am employed by a small business, and this is important to me. I am, by no means, against interest rate cuts.
Click here to read the article about Bernanke cutting interest rates in Januray 29, 2008.
Click here for Dr. Harper’s PowerPoint Presentation supporting his discussion at the Beach Chamber’s Friday at the Beach.Print Story