It did not take long for the stimulus/rebate discussion to take on a life of its own. Why it was just earlier this week that the presidential candidates were telling us how they would stimulate the economy. As if any of this would be timely or meaningful by the time they take office. As if green collar job programs are the way to help avoid recession. Well, the current president got the message and looks like he is going to try to steal at least a little bit of their thunder. Mr. Obama will have to either come up with something new or claim victory in that the president is proposing something similar to what he suggested.
Enter Mr. Bush... (NY Times)
WASHINGTON — President Bush called on Friday for about $145 billion worth of tax rebates for American families and incentives for businesses to provide “a shot in the arm to keep a fundamentally strong economy healthy” and avert a slide into recession.
The president said the package “must be big enough to make a difference” in an economy as large as that of the United States, meaning it should be worth about 1 percent of the gross domestic product, putting it at $140 billion to $150 billion, Treasury Secretary Henry M. Paulson Jr. said later.
“This growth package must be temporary and take effect right away,” Mr. Bush said. The president said Mr. Paulson would work with Congressional leaders to get a bipartisan relief package ready as soon as possible.
As soon as possible could be really soon. Over at CNN/Money the sub-headline was "Lawmakers are still working out final details on cutting checks to all Americans to fight recession." We're already on the final details? Considering how long it usually takes to get things done in congress, that is fast. Almost frighteningly fast. Back in the NY Times article, they quote Senator Reid,
The Senate majority leader, Harry Reid of Nevada, was low key and cautious in his initial reaction. “I am encouraged and share the president’s view that we need prompt bipartisan action to strengthen our economy,” he said. “I also agree that our focus must be on finding temporary measures that will do the job effectively. I look forward to working with the president to implement responsible solutions that revive our economy for the benefit of all Americans.”
Reid's "initial reaction" as lawmakers work out the "final details"? Like I said, this took on a life of its own this week. So can we quantify how fast this is rolling ahead? Apparently so. Back to CNN/Money:
On Friday afternoon, House Financial Services Chairman Barney Frank (D-Mass.) told CNN he believed lawmakers could pass a stimulus package, including a rebate, by March 1.
And that means money in your pocket by summertime.
But I ask again, as I asked the other day, is this this the way to go?
I'll stop short of calling it a 100% unmitigated bad thing. Sure, we all know that the link between the rebates and increased spending is tenuous. Shapiro and Slemrod find that only about 22% of households would spend the rebate (link via Angus at Kids Prefer Cheese). So the stimulus part is a little dubious. King Banaian repeats the skepticism he voiced the other day. Bill Thomas and Alex Brill express their displeasure with all the stimulus talk in this Wall Street Journal commentary. The Journal's editorial page also questions the need with a swipe at Nixon's famous line, "We're all Keynesians now." Andrew Samwick just calls it deficit spending. Everyone seems to be piling on, and it's hard to blame them. Still, in defense of the rebates, it's probably faster and, if targeted at low and middle income households, more effective than many other forms of fiscal stimulus.
Yet it's far from clear that fiscal stimulus is what is necessary to fight whatever recession, downturn, slowdown, or whatever you want to call it may be on the horizon. My main concern which I don't think I've seen mentioned elsewhere in the econ-blogosphere (but correct me if I'm wrong) is that politicians might become addicted to these rebate checks. There are all sorts of political games that can be played with them. The president doesn't have to worry about getting re-elected, but clearly the rebates could give him a small victory on the way out. Congress, however, is up for re-election in November, and wouldn't it be nice to be able to go back to their constituents after Labor Day and tell everyone how they are responsible for those checks. Not that the American voters can be bought, of course.
So despite the protests from many quarters, I'd say that the rebate checks (in some form) are just about a sure thing. Shapiro and Slemrod will have a chance at a sequel.
UPDATE: Bruce Bartlett pulls no punches.
Doesn't the negative (or nearly-so) savings rate indicate that people don't save cash-in-hand anymore? (They just save whatever gets pulled out of payroll for retirement vehicles.)
As I said elsewhere regarding the mid-70s tax rebate: your grandparents might have saved that or retired (mortgage) debt.
Today, I'm much more skeptical. There's so little saving, and so much more revolving debt. Even if people do lower their revolving debt, many will spend it again rapidly.
I'm not a big fan of 'we MUST do SOMETHING' mantra, but something is likely to be done no matter what. I'm hoping for just a one-time thing with no permenant strings attached--as little chance for long-term negative repercussions as possible.
If we have a normal recession in 2008, checks reaching the consumer in the summer time would seem to be almost perfect timing -- in the middle of an average recession.
We see the surveys that a large portion of rebates go to paying down debt. But this also frees the money that would have gone to debt servicing to be spent on other things.
So these estimates all seemed to be highly biased to the low side.
Gee -- I look at the data for 1975 and I see real PCE growth accelerating from a negative number at the start of 1975 to 6.5% at the end of 1975-- moreover the largest monthly increase was the month the consumers got the rebates. The sure does not look like the rebates failed to stimulate consumer spending to me.