Bloomberg.com published an opinion editorial by Michael R. Sesit on January 30th that suggested the economy needed cash injected into it immediately, not tax breaks later. This article was focused on what the typical consumer would have needed from the stimulus plan that was bouncing around Congress at the time, but with the bill being passed the other day, much of this is moot at this point. However, the concepts in Sesit’s piece were interesting enough to maintain this post.
Sesit suggests the following:
Early last year, Congress passed, and President George W. Bush signed, a $168 billion stimulus bill whose centerpiece was about $100 billion in personal-tax rebates. Only about a third of the rebate checks, which ranged from $300 to more than $1,200 for some families, were spent, Mishel says. Others put the unspent portion as high as 80 percent.
“It was not an effective way to get the economy back on track,” Mishel says,
A survey of people eligible to receive tax rebates of $300 or $600 in 2001 found that only 22 percent of households receiving the money spent it, according to a study by Matthew Shapiro and Joel Slemrod at the University of Michigan.
You can learn a few things from this, some of which we might have already assumed. First, is it a surprise to anyone that nearly 80% of the people who received a check last year put it in the bank and didn’t spend it? Americans are hurting for money. Any middle or lower income family will tell you that they probably used the money they received last spring to either buoy their savings accounts or pay down some of their debts.
By the way, I have to bring up an odd coincidence here. How interesting is it that Americans used the checks to strengthen their savings accounts much like banks used their bailout money to strengthen their balance sheets? The purpose of the checks last spring were to get Americans spending money – it didn’t happen. The purpose of the bailout dollars to the banks was to get them making loans again – it didn’t happen. Just thought I’d point that out.
If you get a chance, I suggest reading Sesit’s op-ed – it’s interesting and presents a more “what do we need now” point of view. For what it’s worth, I think the economy needs many things, but most of all we need a readjustment of costs. Take housing, for example. There are homes on the market that are selling for 20% – 40% below their listing price and they are still too expensive.