Design of Economic Stimulus

[SteveL]

I recently heard a discussion on Fox News complaining about the $600 Bush stimulus program. Basically, the complaint was that people either saved it or paid down debt, and thus the stimulus effect was weak.

In the Business Week I got yesterday, there is a related discussion of how any new stimulus will just produce jobs overseas rather than in the US. This is due to the loss of manufacturing jobs via out-sourcing. BW reported about US content requirements in road construction steel as an example of the kind of thing the govt. tries to do to make money spent do something for the US economy.

The OBAMA stimulus deal is supposed to be $500B.

I am just wondering what ideas people have to help make this be most beneficial to the US economy?

 

[ziggy29]

Hopefully this can stick to fiscal policy and economic impact and not need to be moved to the Soap Box, but that's how I saw it: Most people I know used their checks to pay down debt or put into savings -- as people often do when they see tougher times ahead and increasing job insecurity, which is the prudent thing to do (but not the intent).

And to the extent people spent their stimulus checks, it stimulated China's manufacturing industry as much as it stimulated the domestic economy. That's why I think that if another "stimulus" package is destined to occur, it shouldn't be in the form of direct payments to indlviduals.

What they need is a stimulus package that creates a job for my wife in the town where we live. We have five figures worth of "economic stimulus" to put into the local economy in terms of items to buy and home improvement projects we're looking to start, but as long as my paycheck and benefits are a single point of failure for us, we're hoarding cash in this economy.

Seriously, though, I suppose it would have to directly provide jobs.

 

[2B]

$1,200 is pretty much meaningless to me and DW as far as giving us an incentive to spend. We usually discuss items that cost more than a few hundred dollars but mostly because the other one has to live with it for a few years. That's things like cameras, TVs, cars, etc.

When our check was deposited into our account, it just increased the balance. I guess that makes us part of the group that "saved it." We did go on a European cruise about the same time so maybe you could say it "stimulated" us to go on an expensive vacation. Take your pick.

I don't see where anyone that got it would suddenly shout that they can go buy something. Maybe a few fools did, but they're also probably the same ones that are upside down on the mortgage because of a high variable interest rate based on a liar loan.

 

[dex]

List of countries by GDP (PPP - Wikipedia, the free encyclopedia)
China's plan is to spend about $600B in an GDP of about 7 trillion

RTÉ Business: China's stimulus package to be felt worldwide
The package, decided at a recent meeting chaired by Premier Wen Jiabao, calls for tax cuts and increased spending corresponding to about 7% of China's gross domestic product over the next two years.

To equal China the USA package would need to be about 1.2 Trillion

People are insecure - the majority will not buy things with the money.

Has anyone provided proof that giving people money will help the situation. I don't think it does.

The USA plan is a "I feel your pain plan". It is something for the little guy. It is a tax reduction without calling it that because it would be a philosophy change for the dems i.e. reducing taxes helps the economy.

The UK recently suggested a united world wide tax cut.

A building package will not help the USA - by the time it filters through the economy the recession will be over.

And yes - since we don't mfg most things consumers will buy - most of the money will be going to China.

We are sowing the seeds of the next crisis.

 

[Gone4Good]

The idea that any "stimulus" will go overseas seems poorly thought out to me. 70% of US GDP is personal consumption. Of that amount services account for 60%. So if on a day to day basis 60% of each dollar spent by U.S. consumers goes for services, why would a dollar of "stimulus" be spent any differently?

And of the 40% that is spent on durable and non-durable goods, ~30% is spent on food. So of all consumer spending a scant 24% goes for things that might reasonably be imported (and only some fraction of that 24% actually are imported). But even with the imports, some of that money stays here. The retailer that sells you the Japanese t.v. surely appreciates the business. As does the trucker who ships it to the store and maybe to your house.

I'm similarly unconvinced that "stimulus" directed toward debt reduction or savings is wasted. Surely it goes against the government's intention to stimulate aggregate demand, but it seems to me that repairing household balance sheets is absolutely critical to restoring consumer confidence and exiting this recession. To the extent that the "stimulus" is used to accelerate that balance sheet repair, it should also accelerate the end of the recession.