The Economic Stimulus Plan

First, there’s a good chance that my family will receive somewhere close to $1,200 as a result of the “Economic Stimulus Plan” being proposed by Congress. Am I happy to have the extra money? Of course I am! Do I think that the rebates are going to do any good for the economy? Of course I don’t! Here’s why:

1. The majority of (smart) people will not spend the money, but instead either save it or pay down debt.
2. Those that do spend it will likely spend it where it came from – China.
3. Even if 1 & 2 are false, and everyone does blow their rebate check, it still won’t help the economy.

Now, why do I think these are true?

Why (smart) people won’t spend the rebates

(Smart) People don’t plan their spending around a one time raise in income. If the economy is as bad as people keep telling us it is (a claim I doubt), then people realize they need to be smart with all their money. Even “free” money that the government hands out. If you’re struggling with your mortgage because of all your credit card debt, are you going to go and blow the money? Of course some will, but I think Americans are generally smarter than that. Instead of blowing the money, many will pay down debts to try to stay afloat once they get back to regularly scheduled income.

What about those that are not struggling financially? Are they going to go out and spend like crazy? Well, probably not. Those are the people that tend to be smart financially and will likely save that money. Many may invest that, which could help stimulate the economy some, but that’s not what the government really wants us to do with the money. They want us to run to Wal-Mart and buy a nice Vizio flatscreen tv.

Where the money comes from and gets spent

Here we need to think about one of the reasons why our economy is in the shape it’s in. The fact is that China has a growing economy and doesn’t have to compete fairly in the global market. Many times people buy products that have been imported from China (or other countries, and really, any type of foreign buying isn’t going to help our economy very much).

Mike Huckabee is by no means a financial guru, but this is something that even he seems to get. (His mentioning it during the debate last night did sound awfully similar to Cato’s Chris Edwards’s piece in the New York Post [link].)

Why, even if 1 & 2 are false, the rebates won’t help

Finally, let’s imagine that I’m wrong about both 1 &2 (a hard thing to believe I know!). The success of American corporations is directly related to the strength of our economy. If the corporations are doing well, they increase production and hire more people. Their success means that new wealth is being generated and getting passed down to the workers in that corporation.

Now, let’s imaging that every person runs straight to the store to blow their entire rebate check on American made goods. How exactly is that going to boost the economy? Yes there will be more sales made in the short term, but do we really think that is going to cause our corporations to go out increase production and hire new people? There’s no way that’s going to happen because those running the corporations know this is a short-term increase in demand. As soon as the checks are spent, the demand is going to go back to regular levels. That means their current production levels and employee levels are just fine.

What the stimulus plan should have done

The best way to help the economy is to make America a better place for corporations to succeed. What I find particularly humorous is that most Democrats reject his idea. But, as soon as the unemployment rate goes up, they go nuts. Do they not realize that when the corporations do poorly they have to let people go?

Okay, so how do we help the corporations? By permanently lowering corporate taxes and encouraging their long term growth.

Am I glad I can finish paying off the Mexican Riviera Cruise with my rebate check? Yes I am, but I think I’d be better off in the long run if I didn’t get the check and it was instead spent on encouraging true long term economic growth.