Yes

by Will Emprise

Created on: February 18, 2008

Tax rebates have traditionally worked every time they have been issued, just to what extent, and how fast.

This is a complicated subject matter, and first, there is a need to understand what tax rebates are trying to correct, what goes on during a recession, and how a nation comes out of a recession.

First of all, over-production produces too much of momentarily unneeded things and no one willing to purchase them at the moment. Thus, too many tires, too many tables, too many cabinets may have been produced, consumers may not want them yet and thus these items sit dormant on shelves or in factories. Those that produced them or are in the business of continually producing such items are laid off because their employers have not enough demand to keep them employed. Once these workers are unemployed, they restrict their spending, which means they buy less televisions, cell phones, cars, and even homes. Of course, the cycle then continues the television workers, cell-phone producers, car factory workers, and real estate agents become more and more unemployed. Once this second wave of people becomes unemployed they also start to restrict their spending; they drive less, don't go to movies, don't go to restaurant. Soon waiters and waitresses can't survive on their tips and they become unemployed, the can't pay their car insurance, they can't afford their rent. They spend less on even more items and services, such as food, drinks, heating, and clothing. Thus even more restaurant employees, more bars, more clothing stores begin to lay people off. Obviously this is an endless cycle and during the great depression one in three of all workers experienced this down turn problem.

The remedy proposed by John Maynard Keynes was for the government to spend, not save. Traditionally, before 1930, the United States would espouse a restrictive spending policy in a downturn economy and would act the same way that an individual would: save money, don't spend, and wait until the end of the recession. This is of course what Keynes claimed was the wrong thing to do. In his book, John Maynard Keynes constructed a string of equations to model the US economy. These equations expressed that for an economy to com out of a recession swiftly its government should SPEND.

Once the government gives money to the people, or purchases things such as military equipment, bridges, roads, or even government buildings, money automatically works its way back to the people. Thus, the bridge builders, the road constructors, the military engineers, and the government building constructors, are called to work, and eventually they have more money. They begin spending their money freely, they go to bars and restaurants. The restaurant owners call back the laid off waitresses. Some of the construction workers may buy new cars, which takes those tires off the shelf. These workers may purchase new kitchen cabinets which brings the cabinet factory back into business and employees the formerly laid off workers. Now the cabinet workers go out and buy televisions, cell-phones, and cars, because they are making money again. The economy is in an upturn and people are spending freely, not restrictively until those laid-off are almost entirely brought back to work. Now these people with their jobs back look to the future, formulate that they can afford to start their own businesses and hire more people, thus the unemployment rate shrinks even more.
Now the advantage of the tax rebate is that the rebate can be issued BEFORE the downturn. When the government sees some key indicators showing that things are slowing down, the government can issue money to the people so that they can buy things from the shelves so that no one gets laid off and that if no one gets laid off, no one slows down their spending and a recession never occurs.

Tax rebates are brilliant and extremely efficient. Thank John Maynard Keynes for explaining this.

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