Understanding the Economic Stimulus Package

My good friend NothingKnew posted about the whole tax rebate thing the other day and I wanted to add my voice to the conversation.

Now, I'm not trying to turn this into a debate, but he's missed the point with his rant. Actually knowing him, he knows the point. He simply didn't want to muddy his point with a tangent.

These rebates are not for us. They are for the economy. They are not intended to "give something back." Any politician who tells you this is a liar. (Which is all of them.) The goal is to keep the machine moving and stimulate consumer spending. NothingKnew knows this. He's smart like that.

Don't get me wrong. My friend's disdain for the package is completely justified. The stimulus package is too little and too late. It's just a band aid. Or to quote Robert Reich, "Stimulus Shtimulus."

Why isn't it the "answer?" Several reasons.

The poor need this extra money and safety it can provide the most, but they are also the most likely to spend this money. Unfortunately, their spending power will not be sufficient to make a dent in the situation. No, we need the middle class to spend their money.

Specifically, the government is hoping that middle-class, middle-income families in their 30's & 40's will spend it all. Don't count on it! You've already heard what NothingKnew will do.

I love his comments about wanting to not spend the rebate as...

"our little F-You to the corporations who are just chomping at the bit for these ‘found money’ people who will rush to the big box stores the moment the check comes..."

It illustrates his point and helps me to illustrate mine: This will only work if we take this found money and spend it. And he's gonna screw it up!

Guess what! He's not alone.

Slick and I will be using it to shore-up the defenses for a downturn. We would only put it back into the economy at this time if we absolutely needed a major appliance or home-repair. Since, -- knock on wood -- we don't need either, we will not be doing our part to stimulate consumer spending.

This leaves us the very rich. No amount of "rebate" will change the spending habits of the very rich. Shaq is going to spend $23,000 a month filling his gas tanks no matter what kind of government kickback he gets. So, no help there either.

Let's be frank. The "downturn" is here. It's not just the pendants and doom-sayers who are using the word recession. I believe that an actual recession can still be avoided, but this stimulus package is not the answer. It's misguided political smoke and mirrors made to make us feel good.

Oddly, there's something to be said for feeling good. The major markets move more on feeling than on facts. I've watched markets climb and fall more on impulse and emotion more than anything else. In the end, however, it takes more than consumer confidence figures to right a ship. A bad economy can still flourish in a good situation, but only a sound economy will survive a bad one.

I think we're about to find out how good or bad our economic foundation really is!