Monday, January 28, 2008

Refund Fun

It's been a little while since I posted last. Sorry about that, my sister and her husband were visiting, and that obviously took priority. We had a wonderful time, and were sad to see them leave.

But now you get more posts, so that's good, right?

Actually, it's unclear how many new posts you'll be getting in the near future because my laptop is once again in the shop. Details to follow. Eventually.

Here's what I want to write about today: the economic stimulus package being pushed through Congress. I'm rather conflicted about it. On the one hand, I love the idea that there'd be $1200 coming back into the collective pockets of my marriage. On the other hand, I don't think this will in any way stimulate the economy.

Unless giving money to credit card companies stimulates the economies. Because that is what's going to happen with this money. Two major ways credit companies (and I suppose banks too) will benefit from this refund. First, a lot of people will use this money to pay back debts, specifically credit card or other loan debts. I'll probably put a big chunk of it to student loans. That's what people in debt try to do: pay back that debt. Of course, this will just free up more money for the banks and credit companies, so they'll be able to turn around and loan more money.

The other way credit companies will benefit is because people will anticipatorally spend their refund. They'll purchase something ahead of time on credit, knowing full well that they've got extra money coming in later. I'm willing to bet there are people who have already spent their refund checks this past weekend, even though the bills haven't been passed yet. This of course means that the money the people are getting isn't really worth the full amount to them. If they plan on paying their credit company the $600+ then they'll have to make sure they spend less than that so that the interest rates don't jack it up over that $600 (or, conversely, if they spend $600 they'll have to pay more than that to their creditors). Again, who benefits? The credit card company.

All in all, this is going to create a windfall for creditors. The people who have enough money to loan it out are already making money without producing anything new in society (good grief, I sound like Marx!); they just let their money itself be their source of income. That's not all bad, and I'm not railing against the institution of credit here. It is valuable to our society. But I seriously question whether creating a windfall for those who already have plenty is really the best way to stimulate our economy.

Will these refunds help individual consumers? Yes. They'll be a nice little perk that will help people pay back a few debts or pick up a nice little gift. But will these refunds really stimulate the economy? Probably not. Realistically we won't be creating a ton of new jobs as a result of these refunds. We'll just be lubricating the wheels of credit. It's a great benefit for creditors and a small benefit for consumers. It's a real nice drop in the bucket, but that's all it is.

Of course, it might not even be the right bucket. Woo!

As they took his soul they stole his pride


empeterson said...

Still, I think it would be helpful to get some extra cash. We actually probably would spend it on us. Or groceries. But that counts for something, right? And also, are you getting a new laptop? Or are they trying to fix it again?

marvelous patric said...

i agree, the "economic stimulus" really is going to go to mostly to creditors. i feel like calling up dc and saying to them "i don't think that word means what you think it means."
i think if they really wanted to stimulate the economy, they could do something silly like create jobs via public construction projects and other public work. i hear there's a bridge that needs a building, after all. and, considering all the new government buildings i've seen go up in the past 10 years or so, it seems to me that they could easily fund public art projects for them (such as murals) like they did back in the depression. you may not know this, but a long long ancestor of ours was a famous artist who did a considerable chunk of mural painting during the depression.
but hey, giving everyone $600 to pay off a tiny bit of a bill, yeah, that's real helpful. for who, i just can't figure out.

Jacob Grier said...

The irony is that if people really are spending the money now in anticipation of getting it later, that would actually be an argument in favor of the stimulus. One of the standard arguments against it is that the checks will arrive too late to do any of the good they could theoretically do. By June, the economy will be already be righting itself and, at best, the stimulus will be unnecessary. At worst, it could be counter-cyclical.

Matthew B. Novak said...

That is a nice little bit of irony. I still don't think people actually going out and spending an extra $600+ is really going to stop a recession though. Seriously. What stops a recession is consumer confidence, and tax rebates designed to stem a recession don't exactly inspire confidence. If you want to increase consumer confidence you need to increase jobs (number, pay, and stability), because then people are confident spending money knowing they have their job to fall back on. I'm with Patric all the way here. Public works! Public works!

Jacob said...

Oops, I meant pro-cyclical. But you got what I meant.