January 7, 2009

Obama's Economic Stimulus Plan

the 44th President of the United States...Bara...Image by jmtimages via FlickrThe U.S. is in a serious economic slump, and leaders of both of the two political parties the mainstream media is willing to acknowledge are both clamoring for some sort of economic stimulus package. The core component of President-elect Obama's plan appears to be a series of tax breaks. This is nothing new. During his campaign, Obama talked at length about a middle-class tax cut. As details of his plan emerge, it sounds like each American family will receive from $500 to $1,000, most likely in the form of reduced taxes. Is there any reason to believe that this will work any better than when Bush did it last year?

I am not suggesting that this tax break is all there is to Obama's plan. It is not. However, I would like to ask what I think is an important question about the part of the plan that involves stimulating the economy by essentially putting an additional $500-$1,000 in the hand of every American family - Do we have any reason to believe that this will help?

Common sense would suggest that it might work. If each family receives extra money, they may spend it. Such spending might in term provide the economy with a useful boost. But isn't this really an empirical question? Instead of guessing about what might work, might we consider whether there are any data which would tell us about the likelihood of it helping?

What did you do with the $500 you received from Bush last year as part of his economic stimulus package? Did you immediately dump it into the economy? I put mine in the bank. My tax burden was surprisingly heavy last year, and I did not feel like I had any extra money to spend after writing that check. How many Americans will do something similar with Obama's rebate?

Whatever happened to making policy decisions based on data? I'll admit that I know little about economics, but I'm curious about why nobody is discussing what relevant data say about the likelihood of such an economic stimulus plan working. Is it because we don't have any or because the media figures we are too stupid or self-absorbed to care?

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