Feb 12 2008

A 17 year old’s critique of Washington’s “fiscal stimulus” package

Here’s a comment from student Alice Su to a previous post about Washington’s $170 billion fiscal stimulus package:

It seems to me that this tax rebate is not truly addressing the problem of recession–undoubtedly, it does, as Nancy Pelosi said, “put money in the hands of hardworking Americans”, and this looks like a nice act done under a bipartisan agreement that makes lots of citizens feel better. But only in the short run. Offering a one-time tax rebate like this is like trying to stick a band-aid on a bullet wound.

So the question isn’t “Why put more medicine in now than is necessary?” but rather, “Does this medicine actually do anything to help?” It looks like all it does is temporarily reassure Americans, maybe make the recession a little more cushioned and make the government able to say “LOOK we’re cutting back on taxes! Don’t you love us?”, but it won’t actually do anything that will feasibly fight against the “vicious cycle.”

So does this mean that recessions are inevitable, that there really is nothing you can do to fight them except… wait for it to get better?

In the podcast they mentioned something about fine-tuning interest rates and such to prevent occurrences like the Great Depression. How does that actually work though? And how is the government supposed to know how they should “fine-tune” taxes and interest rates and government spending if they’re in a period of growth/peak? They won’t know what’s needed until they’ve entered the recession, and by then it seems like it’s too late to stop it and all they can do is try methods like the tax rebate in this blog post to just “slightly offset the negative effects.”

Sometimes students simply amaze me in their uncanny ability to pierce through the logical fallacies of the world in which we live. Despite the lauding rhetoric coming from politicians about how this package will help lead the economy towards a new period of expansion, the package’s true impact will probably be more of, as Alice so astutely points out, “like a band-aid on a bullet wound”.

Here’s the kind of thing you’ll hear from Washington:

Bush signs stimulus package – Feb. 11, 2008: CNNMoney.com

President Bush said Monday he is pleased with the $170 billion economic stimulus package passed by Congress last week. The White House announced that he plans to sign it Wednesday.

The government hopes the package, which will send most Americans tax rebate checks by May, will either prevent a recession or make one relatively brief…

“I really want to thank the Congress for getting this bill done,” Bush said. “It’s going to help deal with the uncertainties in this economy.”

But is it enough, asks Alice? And what about the “fine-tuning” of interest rates going on at the Fed? How are fiscal and monetary policies supposed to be employed by governments to fight recession?

These are some of the questions we’ll be discussing in the next unit of AP Macroeconomics. Stay tuned for the answers… and in the mean time, students, keep reading critically and asking those tough questions that politicians simply hope Americans are just too ignorant to think about! Great job, Alice, thanks for the insightful commentary!

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

One response so far

One Response to “A 17 year old’s critique of Washington’s “fiscal stimulus” package”

  1. Mollieon 13 Feb 2008 at 9:52 am

    I work at Dairy Queen, a small ice cream chain, and have noticed that, even in these desolate winter months, people are more than willing to spend money on 'wants,' such as, you guessed it, ice cream. As a country, we're not saving money, we're spending, so I find myself questioning the governments move to give us more money – the amount we're already spending isn't an issue. My Econ teacher [yes, I'll give credit where credit is due, Mr. Lauridson!!!] brought to attention [mine, at least], that the small amount that will potentially be awarded to various citizens would not do much for the economy if we all spent it [not that saving it for those mortgages we're falling behind on would do much good for us, either].

    So, what's with the money? No, $600 isn't going to help with last month's mortgage payment, and if it's not really going to do much to boost the economy [assuming we even spend it at all, rather than saving it for a rainy day], is Alice right in that it's just a feel-good so that the country doesn't get mad at the government for sitting there and doing nothing in light of the recession [oh wait, assuming it IS a recession]?