On the eve of the midterm elections, the giant mutual fund firm Vanguard has weighed in on the side of President Obama and the Democrats with a blog post by a company official declaring that without President Obama's stimulus bill, Americans might be facing a scenario of "unemployment of 15% or more. A Dow that would have fallen 75% off its peak—to 4,000 or less—before recovering to a level much below today's. An economic recovery that might not yet have begun. And finally a foreclosure crisis even larger than our present one."
The author of the post acknowledges that it is a "guess," leaving Vanguard investors (including this one) wondering why company officials are publicly guessing about politics and public policy so close to an election.
"The idea that no third stimulus was needed seems mistaken," the Vanguard official writes, acknowledging, however, that the spending bill "could have included more tax cuts relative to spending (though the tax cuts would have been best targeted at low-income households, who are more likely to spend the money)."
Among the "mistaken," apparently, according to Vanguard, were every single Republican member of the House of Representatives; they all voted against the stimulus bill.
Given that many low-income households don't pay any federal income tax to begin with, it'd be practically difficult to target a tax cut to this population. (Some have suggested doing so via the payroll tax, but that would put Social Security and Medicare on even more shaky financial footings than they are already on.) Nobel laureate Paul Krugman has been going around complaining that too much of the stimulus was tax cuts rather than spending. As for the claim that low-income households are "more likely to spend the money," that's bogus, as we've pointed out here again and again. First of all, upper income households spend plenty; just ask the local BMW dealer. Second of all, the money they don't spend doesn't just sit idle; it is deposited in banks that lend it out or invested in companies that spend it on growing their businesses.
Anyway, it'll be interesting to see whether the crowd on the left that is so furious about the supposedly anonymous corporate money pouring in to the campaign on the side of Republicans will utter a peep of protest at Vanguard's campaign intervention on the side of Democrats and President Obama.
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