The Bush Fiscal Stimulus Plan: Looks Good to Me

Bloomberg News has some details of the kind of fiscal stimulus George Bush is looking for:

The administration is considering a plan that may include $800 rebates for individuals and $1,600 for households as well as tax breaks to encourage businesses to invest, people familiar with the package said.

This seems sensible to me. It's fair, in that everyone is treated equally, but at the same time it is reasonably well targeted at those who will spend it fastest - since the rich are a relatively small percentage of the population, they will receive only a relatively small percentage of the rebates.

What's more, the plan is clearly temporary: no one's going to expect these rebates to return in 2009. And it should help keep investment up, which is necessary for medium-term economic growth.

The money will also arrive relatively soon - as soon as people start filing their tax returns - which means that we won't have to wait too long to see the effect of the stimulus.

Finally, the size seems about right to me: 1% of GDP, or about $140 billion, is affordable but not fiscally disastrous.

I'll be interested to see what James Hamilton thinks, but my guess is that he'll agree with me that insofar as we're going to get a fiscal stimulus package anyway, this is a pretty good way of doing it.

But none of this, of course, should take away from the fact that keeping the broad economy on an even keel is properly the job of the Federal Reserve rather than the Treasury. A short-term fiscal stimulus will help at the margin, but the really crucial thing is to get monetary policy right.

Comments

[Reinko]

Well Felix, does it look good to you?

In that case grab your pocket calculator and go to the Federal Reserve website, the 'flow of funds' sheet (some debt is collected there but not all debt)

Here is the link:

www.federalreserve.gov...

Add up the relevant totals, column one plus the one before last and arrive at the conclusion that the US economy has about 46 trillion or 46,000 billion US$ debt on herself.

Together with the lending against the Social Security funds and the Federal emergency spending we see: Total debt is over 50 trillion.

So at a reasonable interest level the US economy needs 2500 billion a year just for the interest.

Another way of looking at this: Total debt is something like 400% of the gross domestic product, adding 1% more debt will not make much of a difference...

And lets go back in time to 2006: In that year home owners took about 650 billion US$ of value out of there houses, that is about 4 to 5% of GDP yet in 2007 things went sour anyway.

2008 Jan 20 12:25 PM

[DblH]

I think the writer has missed an important aspect of plan. While it's true Mr. Bush's plan is targeted, it's targeted for those of us who have paid taxes. The very poor among us who don't easrn enough to pay taxes are being left out. If one really wants to get the money in the hand of those who are most likely to spend it, it shoud be the very poor.

2008 Jan 21 12:12 PM

[MyTopTen1!]

I feel like this plan wont accomplish a thing! Do you honestly think individuals are going to invest that 800 dollars or whatever it is in the stock market? I bet they will buy another wide screen TV or some other pointless item, probably getting themselves further into credit card debt. What we need is to find a way to fuel business growth, not a 'quick infusion' of capital. I understand that this is a tall order, but it will require a serious re-ordering or our nations budget!

2008 Jan 21 12:46 PM

[JKirk]

The whole point is for people to spend the $800 on a TV, not save it; that's the economic stimulus. Though it wouldn't hurt headline news if people put it towards lowering their CC debt. From a psychological standpoint it's important that Joe Public feels like the government is doing something to prevent a recession- because if Joe doesn't feel that way then he'll stop spending/consuming... and we will be in a recession, and the downward spiral continues....

2008 Jan 21 01:14 PM

[Tom B]

"it's targeted for those of us who have paid taxes"

You have much to learn about class in the US. The poor put fewer $$$ into the tax system, but most of them do pay taxes. And, since they also buy things, they are consumers.

2008 Jan 21 02:46 PM

[Manifestor]

>- since the rich are a relatively small percentage of the population, >they will receive only a relatively small percentage of the rebates.

I have nothing against the rich but as far as stimulus is concerned,
however small their percentage may be, even a dollar going to the rich is a wasted dollar.

2008 Jan 21 04:01 PM

[User 142583]

The thing here is govt. is taking steps but are they solid enough and do they involve and have an effect on most of the economic pointers such as retails,savings,expend... income,overall production,export,impo... or not. If not then its a good try but there still remains much more on the govt. policy side and overall rejuvenation of entire economic development culture in the US.
The great economy needs few fresh magical ingredients amidst international unrest.

2008 Jan 21 06:07 PM

[monnam]

here is another tid bit! how many illegal immigrants are included in this generous 'stimulus'? and estimated 12 million unaccounted tax payers who have no interest in this economy other than sending gringo dollars home to relatives.

2008 Jan 21 09:56 PM

[monnam]

here is another tid bit! how many illegal immigrants are included in this generous 'stimulus'? an estimated 12 million unaccounted tax payers who have no interest in this economy other than sending gringo dollars home to relatives.

2008 Jan 21 09:57 PM