(This is a guest post from Kevin at No Debt Plan. He writes about personal finance including getting and staying out of debt. He’s developing a plan for you to follow to help you achieve wealth in the long run.)
Bruce asked me to fill in today with an article about the economic stimulus checks the government sent out earlier this year. I wrote about this on my blog earlier this year, but thought I would share my perspective a few months after we’ve gotten ours.
Good Intentions, Terrible Execution
I think the economic stimulus checks had a lot of good intentions by the government. As I discussed in my previous post, the idea of stimulating the economy makes sense. The multiplier effect can be very positive as the money trickle out into the economy.
A quick refresher on the basic idea behind the multiplier effect: essentially, you spend money at a local retailer. That retailer employees 3 people and your purchases help make sure the owner and the three employees keep their jobs. Those four people spend their money at other retailers, which furthers the cycle. End result? The economy is strengthened.
So it’s a good idea… the execution is flawed.
The government did an economic stimulus check in the past – I want to say during the 90s. That check, as with this one, did not do much to stimulate the economy. People who received checks used them to pay down debt or bolster savings.
I think it is safe to say a majority of people in the United States did that this year. I’ve read a few accounts of people taking vacations or buying something with part of the check, but most people paid down their home equity loans or credit card debt. The lucky, including me, put a large majority of the money into savings.
If I Were in Charge
If I were in charge of the government, we wouldn’t be in this mess! But, I wouldn’t give what essentially is a tax cut. I would make sure we would have the flexibility to increase government spending which directly stimulates the economy. That means we can’t have record deficits as we do now because increased government spending is politically unpopular.
If the government directly pushes spending into bridge infrastructure across the nation, that creates jobs. The employed workers spend their earnings in the economy. Everyone wins.
As I’ve mentioned handing out money is a politically popular, but economically is not the best option.
© 2008, Bruce Mc. All rights reserved.
