Friday, January 2, 2009

Why Economic Stimulus Checks Probably Don't Work

Before I start, I need to emphasize I wasn't an economics major. However, after watching two tax rebates go out in the name of economic stimulus, I can't help but remember some of the things I learned in accounting class (which I took to better understand the city and county government meetings I knew I'd eventually be covering) as the news reports indicate that President-elect Barack Obama may very well consider another round. One of the things I learned very early in those classes was that you hold on to your cash as long as possible - your liquidity. This, I presume, would hold true whether you're running an ice cream stand or a country. With a nation already in debt, big ticket items like rebate checks only mean we have to borrow more sooner. Plus, after reading pages of anecdotal evidence here, I can't help but think my theory that people don't spend big checks in a retail setting, but instead use them to pay bills or to save, is correct. Big checks are a boon, something you - by human nature - savor and and often horde. People just don't generally spend them in the way that the government would ideally like them to be spent. But you know what would give people incentive to spend? An adjustment of the tax tables. More take-home pay every week would likely go to a movie and a dinner out, or a new pair of shoes, etc. People generally - although they should - do not sock away in savings the difference between say, a raise and their previous paycheck. They likely would not save in this instance, either. Amending the tax tables to give everyone a little more take home pay would mean that the government could, in effect, give workers that tax rebate in installments, instead of one lump sum. Something to think about, anyway.