I’m glad everyone is excited about receiving checks from the government in June or July, but there seems to be a misunderstanding amongst people I talk to. While President Bush and a contingent of the legistlative branch have agreed on the propsed details, the bill still has to pass the House and the Senate. None of the details have been finalized, and no voting will take place until next week.
It’s possible Congress will pass the bill straight away, but I doubt it. The politicians will use this bill as an opportunity to propose other laws which would be added to the economic stimulus. One proposal that may be raised in the Senate is was the idea of offering the rebates for some through food stamps—a much quicker way to get “money” into the hands of the people who will directly stimulate the domestic economy.
In 2001, when $300 or $600 checks were sent out to taxpayers to stimulate the economy, a majority of the funds that wasn’t saved or directed towards debt was spent on clothing. When most clothing is manufactured overseas, spending of this type had little effect on the domestic economy.
By the time the checks arrived in 2001, the economy was already halfway towards recovery. That could happen again this year, particularly if checks are delayed until the end of tax filing season by the IRS.
Before you start planning what you’ll do with this money, wait for the bill to pass the Senate and for the President to sign it into law. Celebrating now is premature.
Economic stimulus package puts President Bush, House leaders on same page [Chicago Tribune]
Lessons from the 2001 Tax Rebates [NPR]
Subscribe
11:47 am (reply)
All of this is just a short term fix. And truth be told, it has been happening over past 3 decades. Reagan and Clinton have just as much blame as the current administration. This is an interesting perspective on this(the midas touch)
1:07 pm (reply)
@rawdaw
I agree, I understand the basic reason to get the checks into the hands of the spenders, but I feel like it is an oversimplified approach to a much more complex problem. And to be honest, it is inevitable. Recessions are just part of the normal cycle of things. Does our government really believe that we could have a Bull Market that never comes to an end?
1:18 pm (reply)
How is food stamps an economic stimulus? Are we going to be creating more farmers with the increase in food demand? Maybe need more grocery stores? That is just a welfare plan not an economic stimulus package. We need jobs to be created not just give more handouts to people.
4:52 pm (reply)
Not sure if anybody has seen the “Futurama” episode where Nixon’s head distributes $300 in “Tricky Dick Funbucks” and hilarity ensues based on what people spend it on.
I’ll save the rant for later. But yes, this is a temporary band-aid that we’ll pay for plus interest in the future.
5:09 pm (reply)
At first when I read about this stimulus package based on rebates I was immediately skeptical and assume it would be a Bad Idea™. However, when I did the numbers it turns out that it isn’t such a bad deal after all. This is because the US government is effectively borrowing money at a very low rate (approx. 4.36%) to return it to the economy which will almost certainly produce a higher return on the capital. Our government bonds still fetch below market interest rates and that is what makes this deal actually help the economy.
What this plan will not do is cause a long term improvement in the US economy. It will prop up spending for 1-2 quarters, which if we are in or will have a real recession (2+ quarters of GDP contraction) this won’t fix it. I am not a fan of running regular and prolonged budget deficits (governmental or personal) but utilizing our governments good credit rating to fuel money to cash strapped consumers is based on valid economic and finance theory.
This is a shameless plug, but I’ve written a more extensive look at this topic so if you are interested check out my blog.
3:58 pm (reply)
I’m not sure I can agree with Adfecto on this. I guess we’ll have to wait and see what affect the rebates will have on the economy. Most checks should be delivered (if the bill passes the Senate) by June – things could well fix themselves by then. I think a better idea would be for the government to issue coupons or vouchers with an expiration date. This would force people to spend the money – rather than save it.
6:10 pm (reply)
@ JSB –
You want to force people to spend the money, but that is not needed to help the economy in this case. If the government borrows money at low rates and then consumers save this money, it will provide banks and lending institutions capital to make loans. This will help ease the credit crunch and permit business to get access to credit. Everyone is happpy: the consumers, the lenders, and the businesses that received loans.
10:29 am (reply)
This is nothing more than an election year incumbant vote buying scheme. The money is trivil to the overall state of the economy, but it will give these politicians lots of fodder in the upcoming election.