If the $600 goes towards credit card payments and mortgages the effect will be exactly what was hoped for. The indication that this will happen is debt stress in the consumer sector.
Spending is still going along okay. It’s the recapitalisation of the banks that is what’s needed.
MPC goes out the window when the credit cards are maxed and your ARM resets, and I think any one who thinks about it for a while would agree that the old Keynesian fiscal multipliers just aren’t going to work the same way they used to.
Steven Landsburg once said that bipartisanship is essentially the same as a cartel - two competing organizations collude in order to prevent competition which would benefit the consumers (i.e. us). I used to think that he was being too cynical.
The problem may not be that severe in the first place - not meeting the test of a crisis that requires the government to do something like this in the first place.
The last ‘stimulus’ package didn’t work nearly as well as they thought, because many people just saved the money instead of spending it.
If ‘excess productive capacity’ is excessive simply because we’ve got a glut of production, then propping it up with spending is a bad idea. The end of a business cycle is almost defined as having too much production. A recession or lowered growth is a necessary response to correct the problem. ‘Propping it up’ with demand-side stimulus is making the problem worse. When the stimulus fades, you still have too much production. But now you also have higher interest rates, a lower dollar, more inflation, or more debt to worry about.
The history of government ‘stimulus’ packages is that they are usually timed wrong. By the time you know you are in a recession, you’re almost on your way out of it. Then the government money hits while you’re already recovering. The thing about Bush’s tax cuts is that they came at a time when the economy was already doing just fine.
On the other hand, I wonder if this ‘stimulus’ package isn’t being sold as something it’s not. It looks to me like it’s a way to inject liquidity back into the credit markets without panicking people. These rebates may hold off a lot of foreclosures for another month or two. Maybe the government is just trying to manage a serious credit crunch and keep money flowing through the economy. In other words, maybe there really is a crisis, and this money will help prevent a panic.
Being politicians, I assume the most craven reason for this is the correct one. They just saying, “See guys? We can work together when it really counts! Please don’t vote all of us out of office in ten months!”
Poor treatment. It’s true that people are more likely to save a substantial portion of temporary refunds. But 2 studies show that the rebates of 2001 led to surprising amounts of stimulus, at least relative to received wisdom.
That said, this stimulus package is tilted towards higher income groups, which are less likely to spend the proceeds. It’s a bit of a damp squib. Who gets stimulated ? - The New York Times
What’s the difference between an excess of production and inadequate demand? This sounds like 1930-32 talk to me. If there truly is excess capacity then there’s no reason why firms would respond to higher demand with higher prices. More prosaically, inflation tends to decline during recessions.