I think that it will have a positive impact on the US economy. Just like borme said, this is the land of instant gratification. Those who have massive credit card debt aren't going to use it to pay off debt. That would be against their ways. They are used to living above their means. They will spend it, and unfortunately get further into debt. Everyone keeps referencing $600, but we get $1500 (married with 1 kid), that's a decent amount of money. Like the cheapsters that we are, it's going into savings. But, will I consider buying that new dress knowing I just got an extra $1500, heck yes. Will we go out to dinner an extra night knowing we just got a $1500 cushion? yes. I hear that many will use the money to pay their mortgage. But if they regularly budget for that mortgage each month, believe me they'll consider going out for drinks or dinner an extra night. Which in turn pays a bartender/waitress plus tips, which then encourages him/her to go out and buy a shirt, which then puts commission into someone's pocket and on and on... Will this be the answer to the problem, probably not. But will everyone spend a little more, I believe so.
While I think it will only be a short term lift to the economy, since consumers drive the majority of the economy I think that putting a little extra money in their hands will help to give the economy a kickstart.
Obviously many people will use it to pay off their credit cards or their mortgages (which you could argue provides liquidity to banks, thus fueling their ability to fund more loans, thus stimulating the economy) but I believe a lot of people will spend it. I mean, c'mon, this is America, the land of instant gratification. A significant amount of people will take the check straight to the mall/electronics store/wherever and spend it as soon as it hits their account.
Agreed. While it is not a good long-term fix and a number of very smart Nobel laureates don't like it, I do think that giving consumers a little more spending power will help to at least dampen the impact of a pending recession. True, folks would do well to take their $600 check and save, invest or pay-off their mortgages. But undoubtedly some of these rebate checks will be spent on electronics, food, etc.
It will be interesting to see what kind of an effect these stimulus checks will have in a summer where gas is expected to top $4/gallon, particularly with the debates now centered around temporarily repealing the federal gas tax. What effect could that have on the US economy? If that passes, would oil companies just hike their prices regardless? If so, a lot of stimulus checks might go to make oil execs a lot richer...
Even if everyone sent their money to the nearest electronic retailers, do you really think dumping that money would really stimulate the economy? It's already been offset by the rising price of consumables, which are only going to increase further, so that money isn't going to foster anything.
Answer me this... what REAL effect does dumping $168 billion have on the economy? It doesn't impact consumer behavior and it certainly doesn't impact long-term spending habits. How do you measure a "kickstart" anyway? What are your terms of deeming it successful? Please cite specific examples of how this will help "the economy" rather than talk in broad, high-level terms.
Oh and don't forget the increase in taxes we'll eventually pay to offset the increase in budget deficit this creates!
Adding support to the bottom of the mountain supports the entire mountain. This is especially important when the top of the mountain gets as heavy as the top earners in our economy have.
Stimulus checks (money going directly to consumers who will spend it) stimulate the economy much faster and much harder than anything else could.
There are a couple of things people are not considering. First, the majority of people are going to place their check into some sort of financial account. This will further increase liquidity in the banking system which, besides the housing downturn, is the root of this problem. Considering the multiplier effect, the billions of dollars injected in the system has the potential turn into trillions of dollars of loans which would significantly stimulate the economy. Second, corporations are receiving tax credits and accounting benefits for capital purchases. Too many people in this country have no idea how the economic system works and feel their limited knowledge is enough to criticize the collaborative work of economists.
Well said kmackey. It's not as if the brightest economists in the world just threw a bunch of ideas in the air and saw which one landed upright.
This is simple Keynesian economics, which everyone learns in Econ 101. Exogenous increases in spending, such as an increase in government outlays (i.e. a tax rebate), increases total spending by a multiple of that increase. The government will stimulate a great deal of new production with a modest (relatively speaking) outlay if:
1. The people who receive this money then spend most on consumption goods and save the rest. (Which we know will be the case in such an instant gratification society).
2. This extra spending allows businesses to hire more people and pay them, which in turn allows a further increase consumer spending.
This process continues. At each step, the increase in spending is smaller than in the previous step, so that the multiplier process tapers off and allows the attainment of an equilibrium.
"The economic stimulus package may amount to $168 billion, but its effect is supposed to gain mass as it works its way through the economy. Economists call this the "multiplier effect." A University of Michigan economist, said it is difficult to estimate what the multiplier effect will be now..."
While I think borme makes a valid point regarding the U.S. and instant gratification, I do not believe the stimulus package will have much of an impact. I view it as more of a political play as opposed to a true economic tool that will result in any relief. In addition, most individuals that are currently delinquent on their mortgage (or even credit card) have a balance well over the $600.00 being issued...the result is only a drop in the proverbial bucket.
How can it stimulate the economy when it really is not that much and we are all so far in debt. We are going to use it to pay off our debt first. Working answering phones all day I have had more collections calls in the past month than I have had in the 11 years I have worked at my job so as far as I can see it is will do no good.
Of course not. Anyone with half a mind in economics knows it's just a shell game. I hardly have to argue a point when a Nobel prize winning economist does it for me.
I used mine to pay my mortgage... how's that for economic stimulus?
'Horrendous': Nobel economist George Akerlof criticizes Bush administration's economic stimulus package (berkeley.edu)
Quite frankly, I'm not smart enough to know the answer. But my gut feeling (and calling on some common sense as well) tells me no. The government is borrowing the money, doling it out, and hoping that people will buy stuff - which some say will stimulate the economy.
Even assuming that it does stimulate the economy, how is it going to produce enough government revenue to repay the loan?
This is an interesting subject - I would very much appreciate any links to meaningful (and hopefully factual) information.
But HEY, I'm going to spend my half of our rebate (my wife will insist on saving hers - she's most likely being smarter than me on this).
1st I dont think the gov't is borrowing the money, I believe their printing the money out and given it to the taxpayers because its easier to disperse the new money into the economy. I dont think it will solve our problem because in todays world, the money we are getting isnt enough to last. Gas is at an all time high. Food prices are going up. Most of americans are deep in debt, and the stimulus wont put a dent in their debt.
First of, throwing money at a problem wont actually solve it, what needs to happen is a change in ideology. What strikes me about America is that it's an awesome consumer, but very little else. If you look at the other, more prosperous countries in the world, they are all producers, and that intrinsically shows how flawed encouraging people to consume is, in terms of saving an economy. Furthermore, I really looks like a desperate attempt by the Bush administration to save face, and claw back some approval rating, by literally bribing the populace. Moreover, while low interest rates are no indication of economic prosperity, you will notice that when interest rates are low for business loans, such as what happened in Japan, economies tend to grow because of infrastructure development and increased productivity. However what this essentially is is a private donation, and really, I think the government could have spent the money much more effectively in encouraging american high tech industry to expand and produce rather than just have the money drain away into made in china goods.
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