While I do not have time at the moment to do a proper summary of the following by John Taylor at Stanford, it is a good read and not that long. Bottom line, he updates a statistical analysis of the impact of fiscal stimulus spending, like we did last year and are about to repeat, and concludes there is no evidence to support its assumed impact on consumption, i.e. it has no statistically significant impact on increasing consumption. In other words, giving people a rebate is not helping the problem.
I for one take a slightly different view. I do not want people to spend more. I think they are now, for a change, spending within their means and it needs to remain there. Consumer debt is actually going down right now, minimally at least, and that is a good thing. The problem is not a lack of consumer spending, it is that we have built up too many retail and other establishments to be supported by what we make. That, my friends, is why we are correcting. And that is why a lot of businesses NEED to go out of business.
The only thing that rebates might achieve is to shift a bit of debt from the consumer's pocket to the government's pocket, benefiting the pay down in consumer debt or the increase in savings. I do not, however, view this as an efficient use of government money. Rather, we need to be using the money to (1) deal with the fallout of a recession in terms of helping the unemployed, homeless, etc. and (2) work on building sustainable businesses and jobs. The latter is difficult, but spending on alternative energy, better education and the like makes some sense to me. Meanwhile the economy will correct itself and we should let it take its course. We should certainly not be building a massive deficit in trying to stop the inevitable.
http://www.aeaweb.org/annual_mtg_papers/2009/retrieve.php?pdfid=387
Quote of the Day
"When the best minds of the country are all going to Wall Street, there is a distortion in the allocation of human capital to some activities that become excessive and eventually inefficient." Nouriel Roubini
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