Now that the stimulus package has passed, as James noted below, the conventional wisdom, as we discussed yesterday on OTB Radio, seems to be that this stimulus package won’t actually stimulate the economy at all. The thinking here goes to the effect that the economic stimulus comes when people say, “Cool, an extra 600 bucks! I’m going to buy a new TV.” But since most people receiving a stimulus in this round of rebates are expected to either (a) save the money or (b) spend it on debt, the common thinking seems to be that there’s no stimulus at all.
But after thinking about it for awhile, I wonder if this is actually the case. Because think of it this way: the primary economic trouble going on right now is in the banking industry, because consumers are defaulting on mortgages and its feared that credit cards are next, right? If this is the case, though, wouldn’t people putting their tax money in the bank, either in the form of a debt payment or a savings account, be a good thing? After all, more debt payments mean fewer defaults, and more savings means more money to cover loans.
So, if the common wisdom is correct and most of the tax rebate money is going to wind up in the bank one way or the other, won’t that help stabilize the credit issues? And if it’s those credit issues that are underlying the current woes in the economy, wouldn’t the rebates help out the economy overall?
I’m no economist, so if there’s some flaw in my thinking here, by all means drop them in the comments below.
