so the senate passed the economic stimulus plan today after a little debate about adding a bit more money for seniors and veterans. in total the whole plan will be worth about $168 billion. here is what the plan will do:
As passed by the Senate and sent to the House, the program calls for rebates ranging from $300 to $1,200 for most taxpayers, payments of $300 to people who paid no income taxes but earned $3,000 or more from Social Security or veterans’ disability benefits, and various tax incentives for businesses.
but even more important than the checks going out to american consumers are the photo ops today in the senate for three potential next president. would be fun to see all three of them posing for more photo ops when the checks are actually delivered — hillary handing over a $300 check by herself.
but what is the impact of this? so there will be another $168 billion added to the economy some point during 2008. to put that into perspective, the gdp of the US is $13.13 trillion, which mean that the $168 billion will only be a little blimp on the radar of the US economy. on top of this, it is not even clear how much of the $168 billion will end up back in the economy since some of the recipients of the money will decide to save it (something quite likely in a time when the economy is not doing well). and even of the money that will be spend, some will end up outside of the US, very likely in china, paying for some product that has been sold at wal mart of target.
encouraging spending is the wrong message to send
while i think that the stimulus plan won’t have a big impact on the economy, i think it also sends the wrong message. americans already spend way beyond their means. one of the reasons we are in this situation is that americans spend too much, and they spend too much money they didn’t have. so to tell them, please spend more is not addressing the actual problem, it will only lead to even bigger problems down the road.
what should be done?
now there are probably a ton of solutions to address the current economic situation. one might be to do nothing and as most republicans always like to say “let the market take care of it” — (interestingly those very republicans don’t seem to have very much faith in the market right now, screaming for this stimulus package and for all kinds of help for the banks). but there is one thing that is in dire need of more money, that will pay the bills for thousands of americans, and that will make america more attractive for foreign investors — what i am talking about is the US infrastructure. and i am not even talking about the internet, the information highway or the like, no, plain old streets, bridges, water ways, harbors …the bridge disaster last year in minnesota as well as the blast of an 83 year old steam pipe in ny show that the existing infrastructure is crumbling, with:
One-in-four U.S. bridges need repair; one-third of roads are in substandard condition; one-third of dams are considered hazardous; and aging sewer systems spill 1.2 trillion gallons of sewage annually…
and one study has the cost to repair existing infrastructure at more than $1.6 trillion. now you might say that the $160 billion would not be enough to pay for that, but some government spending is already going towards those $1.6 trillion and the $160 billion would get the country closer to having a 21st century infrastructure.
so investing the money in repairing the american infrastructure has a couple of benefits
- it would employ thousands of construction workers, a group that is extremely hard his due to the current housing slump
- construction needs a lot of other products a lot of which are built in the US — just think ford f-series trucks
- a healthy infrastructure will cut cost due to a crumbling infrastructure (reduction in insurance payments, emergency clean ups …)
- a healthy infrastructure will make environmental sense
- a healthy infrastructure will make the US more interesting from an investment perspective (which is especially right now with the weak dollar quite good)
the one downside with this infrastructure investment solution as a stimulus package might be that it will not kick in as fast as the consumption checks, but then nobody knows the actual impact of those checks and with no checks americans might start to learn to spend their money a bit more wisely.