The Economic "Stimulus" Package

By D. Cupples | Apparently, the proposed, $150 billion economic "stimulus" package -- which is supposed to stimulate overall spending so as to decrease the intensity of recession is a dud.  If so, the government will be out $150 billion, but our nation's economy won't be helped that much. Economist Paul Krugman explains some of the proposal's flaws: 

"House Democrats and the White House have reached an agreement on an economic   stimulus plan. Unfortunately, the plan - which essentially consists of   nothing but tax cuts and gives most of those tax cuts to people in fairly good   financial shape - looks like a lemon....

"Aside from business tax breaks - which are an unhappy story for another   column - the plan gives each worker making less than $75,000 a $300 check,   plus additional amounts to people who make enough to pay substantial sums in   income tax. This ensures that the bulk of the money would go to people who are   doing O.K. financially - which misses the whole point."

Incidentally, what happened to the $800-$1600 tax rebates that the Bush Administration's people had whispered to reporters about just over a week ago? Krugman continued:

"The goal of a stimulus plan should be to support overall spending, so as to   avert or limit the depth of a recession. If the money the government lays out   doesn't get spent - if it just gets added to people's bank   accounts or used to pay off debts - the plan will have failed.

"And sending checks to people in good financial shape does little or nothing   to increase overall spending. People who have good incomes, good credit and   secure employment make spending decisions based on their long-term earning power   rather than the size of their latest paycheck. Give such people a few hundred   extra dollars, and they'll just put it in the bank.

"In fact, that appears to be what mainly happened to the tax rebates affluent   Americans received during the last recession in 2001...." (New York Times)

That's right: the $300 rebate of 2001 (which wasn't a true rebate) didn't work. 

And neither did the big corporate tax cuts in 2001 and 2003: at least they didn't work for our nation.  A relative few executives might have taken bigger bonuses or stock-option grants following those tax cuts, but they kept shipping American jobs overseas -- which likely helped foreign economies more than ours.

Comments

[Bill]

I liked Daniel Schorr's explanation of the "Stimulus Package" on NPR. He said it was like telling someone you have cancer and having them offer you a cookie.

[D. Cupples]

Well put, Bill!

[patricia]

So what is the answer to our problem?

[Deb]

HI Patricia,

I wrote this post about a year ago -- about a different economic stimulus package.

Deb