Sunday, June 01, 2008

And now for news that shouldn't surprise us...

By Carl

Remember those touted "rebate checks" that were going to spur the economy?

not so much...

MIAMI — The federal government is showering households with tax rebates to spur spending and invigorate a troubled economy. But many Americans are so consumed with debt and the soaring price of gasoline that they are opting to save the money or use it to pay bills, according to surveys, sales data and interviews with people from Florida to California.

Between late April and the end of last week, the Treasury handed out more than $50 billion of the $100 billion in tax rebates it plans to distribute to 132 million households. But only once in the last six weeks have chain stores registered an increase in sales, according to the International Council of Shopping Centers, whose weekly sales survey is a widely watched barometer.

“The initial sense is that people are not running out to the malls to spend their checks,” said Stuart G. Hoffman, chief economist at the PNC Financial Services Group in Pittsburgh. “It’s not quite proving to be a hot potato that’s burning a hole in people’s pockets.”

You read that right, folks: only one week in the past 6 has seen an increase in consumer spending. I'd lay pretty good money that it was the second week in May, after everyone had sorted out their mortgages and rent, and decided, yes, the had a little extra to spend.

Here's where the lunatic logic of the Republican party comes into play: When tax rebates have been handed out to Americans, only 20 to 50 percent actually gets flushed back into the economy as fresh spending. THe rest, the other half to four-fifths, gets stuck paying down debts or otherwise improving the balance sheets of consumers.

In short, rebates don't really work. Well, that's not true, they COULD work, but only when consumers have enough income coming in and their debt levels are in line with those incomes. Like when the economy is humming along, for example. Which is when they wouldn't need them, right?

A rebate has to be very carefully timed to be distributed at the precise moment when the economy is just beginning to go south, but the effects of the souring economy haven't been felt in the pockets of the average taxpayer, in other words. Since no government in their right mind is going to do anything but talk up the economy at that stage, rebates are esentially ineffectual.

Rather than distribute that money, what the government could have done was make it 100% fresh money in the economy, and spent it themselves. In an ideal world, this is how it should go, but in that world, pigs really do fly.

The government would spend this money on new initiatives, carefully targeted by sector and geography, and thus drum up further private investment. Things like economic development, seed money for small businesses, and other investments that would show a long term return of tax revenue would be ideally suited for this money.

Further, if the government really thought the country was going to go to hell in a handbasket, it could invest this money in infrastructure repair which would have a two-fold effect: it would prime the country for the eventually recovery at the same time it would provide jobs for the working class, those who are most affected by the current sordid state.

If only Bill Clinton could have run for a fourth term...

(Cross-posted to
Simply Left Behind.)

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