The long road for Obama’s Stimulus Plan

Obama Begins Selling Americans the Stimulus Plan – BusinessWeek

I don’t have a ton to add to this article, but I thought it was a worthwhile one to read. 

One idea that came up in my marketing and economics classes the other night was what if something clearly tangible and understandable – cash or something akin to vouchers- were put into the hands of consumers with an explicit requirement to use that money to buy “something” were put into play.  Every consumer understands the idea of something of actual cash value, and the idea that “spending helps the economy” is one which is sufficiently entrenched that the population will get it.*

I can see where Obama’s credit to businesses for creating jobs makes sense to businesses (not saying it will be effective – I’m saying that business owners will understand the point even if they ignore it).  But there is no stipulation that the businesses then use that money for something that will actually continue to stimulate the economy.

Actually, it’s kind of like the luxury tax in baseball.  I’m a big Yankees fan (and have been forever).  Every year, their payroll is so high that they pay millions of dollars to other, smaller market teams.  It’s supposed to balance the system (whether it does or does not is a different discussion altogether).  But at one point the Yankees asked the very reasonable question “are those other teams actually using that money to compete for the players which they supposedly can’t afford, or are they just pocketing it to help their bottom line?” 

* – I am not saying that the general population has trouble understanding basic economic principles.  But “spending money helps the economy” is a heckuva lot more logical than “decreasing interest rates decreases the cost of capital and therefore gives you more money to work with.”  They are essentially the same in effect, but very different in perception and impact.

Comments (2)

  1. Debbie

    I understand why economists want people to spend, but honestly, this push to spend, spend, spend is what got us into this mess in the first place. I was appalled when President Bush’s reaction to 9/11 was to tell people to spend without regard to the affordability of their spending. The spending pendulum went WAY too far and now people need to be encouraged to be more frugal and pay down debt.

    We don’t have much debt – just a reasonable mortgage we can afford and a past LOC balance that we converted to a fixed loan so we could get rid of it (no credit car debt ever here), but we still put the “windfall” of stimulus money earlier this year toward that loan principal. Of course, we did buy a new fridge and new stove this fall, but we had been saving for those items for a year! If there is another stimulus payout, it, too, will go toward the loan principle. A stimulus payout is essentially a gift, and should come with no strings attached.

  2. kaiyen (Post author)

    The key thing is that the spending was without regard to one’s ability to afford the repayments (this is a credit-driven economy, so debt is a reality, but one needs to be able to pay off the debt, at least). Spending, in the short term, drives an economy. In the long run, savings will drive investment from banks and other financial institutions (that hold onto your savings), which is even more powerful. But in the short-run individual spending can have more impact. And when no one will lend at all things just go haywire.

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