A fun little question
Here are the parts:
Hypothetical;
1) We are slipping into a recession because people have slowed their spending habits (on the margin of course). The public has recognized this problem
Very real;
2) The house passed a stimulus package yesterday. While it has yet to go through the senate and the president it is still a fun debate. The house has decided giving people money will stop an economics slowdown.
The possible outcomes I am throwing out for debate;
1) Bernanke asked for it. why not?
2) Six hundred dollars and the "increased liquidity in the market" will "jumpstart" the economy. We avoid the economic downturn.
3) People don't spend it because they are afraid. 2008 is a year of increased unemployment and decreasing economic growth.
4) People spend every cent and it does not matter.
5) We aren't slipping into a recession.
Any other possible outcomes? Any thoughts on these?
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5 comments:
Let's say 4) People spend every cent and it does not matter.
This is in part an intuitive question- if no one spends any of it, there shouldn't be an effect, but lets say they do- will that inevitably jumpstart the economy?
If people spend every cent, what long term implications will this have on the economy? Simply, aggregate demand will increase, but does not represent an actual change in income (which is perhaps why most people wouldn't even consider using the money right off- because such increases are not likely to continue). Firms will know this, and though they may have higher sales, their confidence in future markets will not lead to further business investment. Thusly, a brief stimulus package will have no effect on the real economy.
This seems to me to be there effect, but there is another question. What if the slowdown in spending was temporary anyway? Would this make any difference?
I dont know.
Like with everything, it's about expectations, so a permanent increase in income is much different than the effect of a stimulus package. Though perhaps not no effect, my point was to demonstrate extremes of a case, which to me would still point to only brief relief, and not one that will really change current trends of the system.
I dont think the stimulus package will make any difference at all in the way the economy is going. I think it was Milton Friedman that stated that people wont spend unless it comes from their permanent income, which a one-time rebate obviously is not.
i completely agree. we are not going into recession, we are just slowing a bit. the market might not be so great but life in general hasnt changed much except for an increase in the cost of living. people are going to take this money and save it, blow it, or put it towards their mortgage, even though they have a chance of losing their house. they wont invest it. we are poor.
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