Stimulating the economy - a few dollars at a time

Great Debates
1

Not sure this is GD-worthy, but wasn’t sure where else to put it. Please move if it belongs elsewhere.

This is based on a true-life situation…

The other day my parents informed all their “kids” (we are all late 30s/early 40s, married homeowners with stable jobs) that they’d like to give each of us $1,000 “in the spirit of keeping the US economy alive.”

These were their caveats

[ol]
[li]It must be SPENT, and immediately (no putting it into savings or paying off credit cards)[/li][li]Must be spent on a “durable good” - appliance, computer, furniture, TV, etc. Not on living expenses, or food or clothes, etc.[/li][li]Prefer it to be “made in the USA”[/li][li]We should tell them what we end up using it for[/li][/ol]

Seeing as my wife and I have zero actual needs, we could actually direct our spend to best “stimulate the economy”. A couple of questions arose as I thought about how I could absolutely maximize the stimulus effect of my purchase. (Note: My grasp of economics is basically nil, and while I fully understand that this $1,000 is really meaningless in the macro sense of the economy, just play along with me :))

A)
My first thought was to buy furniture as we have had our eye on replacing some. When buying large household items, we normally wait for the “don’t pay for 6 months and interest-free for 12 months” kind of thing.
Question: Does paying cash “up-front” (or via credit card where the business will get reimbursed fairly readily) have more of a stimulus effect than taking advantage of the “don’t pay anything now” offers? I would guess that the taking in of revenue “as cash” is somewhat if not entirely separate from the inventory side of things (esp for chain stores of at least regional size). In other words, once an item is sold, it creates a chain reaction of another item needed to be purchased by the business to replace its inventory, which in theory creates a stimulus. Whether or not they get the cash is irrelevant.
Resolution: We can take advantage of the “don’t pay now” offers and still have the same stimulus affect

B)
Question: Related to the above question - does it make a difference what type (size) of business I spend my money with, especially if it’s a durable good that is most likely mass-produced. Should I get more bang for my buck by going to Lazy-Boy to get my furniture, or would “Fred & Mary’s Furniture Shack” be a better bet? In this case, I’m not interested in buying from a local small business solely for the sake of the “buy local/WalMart sucks” argument - what I’m interested in is what will have the most stimulus effect. In fact, if I can buy two comfy chairs at Store A instead of one (identical) comfy chair at Store B, aren’t I increasing the effect of the spend?
Resolution: Big chain store with discounts, here I come

C)
Question: I understand their proscription on not using it for living expenses such as food (“daily groceries”), as then you are in essence just shifting your budget around and putting the $1,000 gift into savings. But what if we wanted to use the money to go out to dinner several times? Let’s make the assumption now that the difference in money spent between us eating at home vs. going out is great enough that it’s not merely shifting money (for example, a dinner at home costs us maybe $5, whereas if we go out we’ll spend $75 - $100 each time). Wouldn’t spending the money this way have the exact same “stimulus effect” as spending it on a durable good?
Resolution: Darling, get dressed 'cos we’re going to Chez Magnifique for some fine French dining. But first, let me call my Mom to get her to amend her restrictions…

2

After I posted this one amusing (or frightening) thought occurred to me - my parents have more explicit direction and accountability over $1,000 of stimulus spending than the gov’t has over $800 Billion.

Maybe Ma and Pa should be advising the powers-that-be?

3

They also have a regulatory and oversight bureaucracy that’s nearly as large as the population they’re extending the stimulus package to, which makes it a lot easier to ensure that the conditions of the stimulus are being adhered to, without loopholes.

4

Not to hijack, but why doesn’t savings stimulate the economy? By saving money, that puts more money into the banking system, that then lends it out, creating more money, giving people better interest rates on cars, homes, etc.

Unless you simply set fire to a pile of money (and even that would decrease the liabilities of the Federal Reserve) why is there considered a “bad” use of it?

5

Not an economist, but my guess is, because the banks have demonstrated that increases in the banking system do not necessarily result in increases in lending - the banks are holding onto their moola to make sure they don’t go out of business themselves. Which means saving the money in the bank is about as effective at encouraging the economy as burying it in the backyard is.

6

I don’t think this is necessarily a hijack, as I suppose my questions (me being OP) could really be boiled down to “what is the single most effective use of $1,000 for stimulating the economy”…

but I didn’t know if that was already being covered in the myriad other stimulus threads.

7

IANAEconomist, but my suggestion would be to buy a US product from a company you think compensates their employees well. So not only are you giving money to the producer and seller, but your supporting a company that gives more “stimulating” money to it’s employees to also spend.

8

My philosophy is to keep the money I spend to “stimulate the economy” close to home…as of late I have been spending more at good local businesses and less at large national chains. Not only have I made some large purchases at small stores but I have stopped making many everday purchases at large chains and switched the business to small local grocers and drugstores.

And I have been making an effort to give business to companies that have given me exceptional service in the past.