With all eyes suddenly on the economy, thanks in large part I am convinced to the extra hyperbole produced by a presidential campaign, there is much talk now of what sort of government “stimulus” package may be offered. Without debating the value of Fed vs. legislative interventions, and without debating the potential long-term ills caused by such short-term interventions, let me just point to a pair of articles in today’s Wall Street Journal that, in a small way, show why such a stimulus is bound to disappoint a lot of people:
David Wessel, in his “Capital” column headlined “Speed and Restraint Are Crucial” (gated, but well worth a read), writes:
“To be effective and prudent — and it’s an open question how effective it will be — stimulus needs to be timely, targeted and temporary.”
A few pages later, in an article headlined “Taxman Could Slow Stimulus Plan,” Sarah Lueck shows why the “timely” part of the stimulus equation can be hard to achieve:
“Even if Congress meets its goal of finishing a stimulus bill before March, it is likely to take until June for the government to start sending out the millions of rebate checks that would be the plan’s centerpiece. It would take a couple more months before all the checks could be mailed.
The IRS — and its computer system — is focused on processing tax returns for 2007, and will be busy until May.
‘It is remarkable that the world’s leading economic power can’t get checks out the door faster than that,’ Peter Orszag, the director of the Congressional Budget Office, told senators at a hearing Tuesday.”
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. You can also watch it on 
Five months is no problem. The recession could easily be 12 months, and in the past employment growth and state government revenues are sluggish for a couple of years. Sooner is better than later, but there is still plenty of time to have an impact.
Anything the government does takes forever unless it’s for their own benefit…
I thought that the ‘standard’ way to stimulate the economy was for the government to start spending money on things, usually infrastructure.
This both gives the people jobs, and gets infrastructure built at times when wages are down (which is why the stimulus is needed), getting government value for money.
Don’t you think some people will spend the $300 once they hear that it is official? In fact, I bet some people will spend it now, and then spend it again in five months when they actually get the check.
I bet some payday lenders will gladly give the people their $300 now with 23% interest due when the check arrives from government. In fact, they may be the real winners here.
While giving everyone enough for a new iPod or Wii will no doubt be popular, wouldn’t the money be better spent on infrastructure? If the feds dole out billions on interurban passenger rail, the U.S. won’t be so vulnerable to future oil shocks.
I think this could make for an interesting stock pick… if its a $300 rebate, maybe pick up nintendo (as the $300 would put it in Nintendo Wii or DS Territory), if $800, maybe a manufacturer of LCD or Plasma displays. It would seem the American consumer is dumb enough to splurge rather than save. For me? I’ll invest my $300-800, I’ll need it someday to offset the social security I’ll never get, and pay down the debt burden our elected officials are piling onto my future.
These law makers are stuck on the idea of a separate rebate check. Since we are all filing taxes anyway, why not just give us an extra credit of whatever amount for this year. So if you owe and use a credit card or debit account to pay, less will be drafted. If you pay by check, you will get a refund. If you get tax refund, your refund will be bigger. And finally if you don’t file, you don’t get anything.
If a stimulus is to be effective, it needs to get money into the hands of those who will spend it as quickly as possible. This is why it is puzzling to me that they (the white house and congressional leaders) have taken extension of unemployment benefits and food stamps off the table. Those are two parts of the economy in which all or almost all the money placed will be spent quickly. So they have a better multiplier effect. Furthermore, extending unemployment benefits also tends to reduce foreclosures and sails at loss of homes, both of which would be very good things in this economy.
Infrastructure spending is not bad in terms of job creation, but the lead time between allocating funds and actually starting to create jobs is relatively long, so it is not as good a way to stimulate the economy. (I am for infrastructure spending, I just don’t think it is the best way to stimulate the economy out of a recession or slow down.)