President Bush is scheduled to provide his plan today for a stimuulus package that will give a boost to our faltering economy. I can understand the demand for some encouragement, as people are struggling everywhere with stock prices, failing mortgages, high gas prices and incomes that are not keeping up with the price of bread (that is a bit hyperbolic, but not much. Have you seen the price of bread? Geez.)
Here is the problem: stimulus. It is a great strategy, except that a stimulus is, by nature, external. Let’s start with a quick look at what answer.com says about stimulus:
Stimulus (st?m‘y?-l?s) –
- Something causing or regarded as causing a response.
- An agent, action, or condition that elicits or accelerates a physiological or psychological activity or response.
- Something that incites or rouses to action; an incentive: “Works which were in themselves poor have often proved a stimulus to the imagination” (W.H. Auden).
So, if something is going to “cause a response” or “accelerate and activity,”that something has to come from somewhere other than with in the system. I guess the most appropriate word in this whole definition, for our purposes, is “incentive.” Imagine that your boss wants to incite you into action, so he gives you money from your next paycheck to get you motivated. That is not a external, therefore is not an incentive. It is a loan.
And that is what we are talking about. All of the options on the table are short term fixes that borrow money from one place and put it in the hands of the consumer, in one way or another, to stimulate spending, create economic growth, and eventually replace the money that was used through larger tax revenues.
There are two problems that I see with this approach, correct me if I am wrong; 1. The government is rotten at putting money back where it is supposed to go; and 2. Borrowing too much is what got is in this situation in the first place.
If my wife and I charge the electric bill on our credit card so that we will have more money to live on this month, doesn’t that create a problem for us next month? Perhaps I am being young and naive, and that the larger economy is different and we don’t have to worry about those debts because supply side economics is working on that for us.
Really, if there is some better way to understand it, let me know. I am all ears.