Left In Lowell

Instead of Spending Our Way Out, Why Not Saving?

4 Responses to “Instead of Spending Our Way Out, Why Not Saving?”

1. ems Says:
   December 30th, 2008 at 4:26 pm

   Paying down debts won’t fix the liquidity trap we’re in. As Krugman has pointed out, one-shot rebates to consumers historically don’t trigger spending, which is vital. People spend income they perceive is permanent rather than temporary. Bush’s stimulus check last year was fairly useless because of this phenomena and stands in as an argument against what the post linked to from Americablog argues. The problem is even more pronounced now because banks are hoarding cash. The TARP money isn’t having a substantial effect on liquidity as of yet. $19 per person, per pay period does seem inconsequential to an extent. My first reaction is that it is politically symbolic, so that the Administration can say they delivered on their campaign promise of tax cuts. The perceived permanence of the cut is more likely to influence consumer behavior than a one-shot rebate check. All-in-all, it’s probably no worse than a one-shot rebate and may be net-better because it is perceived as permanent. Some people will use the extra cash to pay down debts, achieving the goal the post suggests. Others will spend it on an extra night out or new pair of shoes each month, which marginally improves consumer spending.

   Consumer debt isn’t that bad if people have secure jobs, increasing home values and the economy is humming. The broader stimulus strategy of aggressive, counter-cyclical, deficit spending should eventually begin to improve the nation’s economic performance, which will pump consumer confidence as people begin to see higher incomes. This will re-energize lending. Sure, saving is good and all, but what we need is spending - both government and consumer spending - and lots of it. Now.

   The linked Americablog post also suggests this will trade-off with other federal spending efforts, such as infrastructure investment. Don’t count on it. We’re going to spend like crazy on that stuff too. We’ll worry about the massive deficits and debt we’re going to create later.

   This is likely to be the most exciting period of federal budgeting policy in our lifetimes, which is pretty cool if you’re in to that kind of thing.

2. -b Says:
   December 30th, 2008 at 9:16 pm

   Keynesian economics is what we need, and it’s on it’s way big time starting day one with Obama.

3. K-R-S Says:
   December 30th, 2008 at 10:32 pm

   The US and its people have been living on credit for so long, I can’t see and have never seen the benefit of a (some odd) amount stimulus. In my mind, for many folks, the last stimulus conveniently brought people to Best Buy (or Walmart or wherever) to upgrade their TV’s to HD (another silly federal mandate). Plain and simple, I think the stimulus is a STUPID idea ($600 buys me a handbag or two (snark)).
   Furthermore, w/ the most recent bailouts, if our government had taken those dollars and handed them out to those that paid taxes, well…that would have been REAL stimulus. Instead the $$ was used to bail out banks, mortgage giants, insurance and invetsment companies to cover up their shell games. GAMES…Corporate WON and the Taxpayer LOST.

4. Lynne Says:
   December 31st, 2008 at 12:07 pm

   Yes, stimulus checks are basically a very short-term, short-lived, very Republican answer to a long term instability in our economic system. In effect, a round about way of cutting taxes and starving the federal government.

   In a regular recession, a stimulus check, even a short term effect like the one-time Bush refund, might do some good. After all, if a consumer buys something, it takes it off the shelf, meaning the store must order more, meaning the orders go up (at least in the short term), meaning the factory must make more, meaning the workers all up and down that line get paid. However, in a serious recession, bordering on a depression and deflationary spiral (ug, we so do NOT want to go there), it is basically a tiny drop in a big ocean and has no effect at all.

   -b hits it on the head. I would add that after we put the fire out, we need to fix the underlying system in order to prevent this from happening again any time soon. Like, regulating banks again.

   ems: good points RE permanent vs temporary income, and banks hoarding money, which is one I hadn’t though of but had heard about. Also, they are using money (from whatever, including TARP) to buy other healthy banks instead of lending it out. Gee, should we have put restrictions on what to spend that money on, you think? *sigh*

   As to exciting, it certainly will be chalk-full of craziness, for sure…and it’s going to really piss off the fiscal far right. LOL. But we are going to be in so much insane debt, it’ll take a couple decades to dig out.

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