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Feb 9, 2009 10:50 pm US/Central
Good Question: Why Not Give Stimulus To The People?
(WCCO)
The e-mails have been flying since the proposal of the financial industry bailout. Why not bailout the people directly?
Some claim that if the government took the money being proposed for the stimulus and instead cut every taxpayer in America a check that we could get upwards of $200,000. So would that be a good idea?
First: the math.
The stimulus plan is about an $800 billion program. According to the Internal Revenue Service, there are approximately 140 million taxpayers in the United States. That works out to $5714 per taxpayer; hardly a windfall.
Even so, would it make sense to send large checks to taxpayers?
"No," said Jeanne Boeh, chair of the economics department at Augsburg College in Minneapolis.
Boeh said she understands why the concept is attractive: "People are so mad."
She also said the concept is seriously flawed.
"If you get a one-time check, you're more likely to save it or buy something big," she explained.
Many economists believe the 2008 stimulus checks were a failure, because so many people used the money to pay off debts. While that is a responsible personal financial decision to make, it does not stimulate the broader economy.
"Economists believe that people make decisions based on what's called permanent income. So if your grandmother sends you $100 for your birthday, you're not going to assume that you'll have an extra $100 every month," said Boeh.
She explained that permanent income changes result in behavior changes.
Also, sending out checks broadly means that some people get the money who don't need it.
"Do we really want to send Bill Gates a check?" asked Boeh. "Typically when we think about fiscal stimulus, it needs to be targeted and timely."
Although price inflation isn't a major concern in this economic situation, Boeh said that typically dropping extra money into everyone's hands is not a good thing.
A broad effort to dump money also takes away the ability to target spending on the job sectors that need help, and the people who are most in need.
"Think about it. Food stamps: Why don't we just give people the money? We give people food stamps because we want them to spend it on food," she explained.
Also, almost every country around the world is having economic difficulties right now. There are systemic problems. And without a wide effort to repair some of the problems in the economy, writing a check doesn't make sense, according to Boeh.
"We need to feel that next year I'm gonna be OK, not just next month. Next year I'll be able to make my house payment. That's what changes spending behavior," she said.
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