Recently there has been a lot of talk about a short term stimulus plan to help the economy, while this goal might be noble, the problem with it is that there only a very limited about of effect that the short term stimulus package can have on the economy. A short term stimulus policy is based off the idea is that if you give people or business a temporary payment, tax rebate, tax cut or investment tax credit, that while spend or invest all of it or at least the vast majority of it. The problem is that this rarely happens, the evidence from most of the economic literature shows that this does not happen, most people do not change there spending decision based off short term changes in there income, they are more focused on long term changes and outlook for their income. Business are even less likely to base investment decision off of short term tax credits, as the evidence from the history of the investment tax credit that had little effect on business investment because of there short term nature. The problem with statistic like those that CNN had today that showed that consumer spent 2/3 of there 2001 tax rebate is that it only looks at whether or not people spent the “check”, not if they increased there overall spending, in many case people were going to spend that same amount any way, they just spent it earlier and their overall spending did not increase.
I can understand the political reasons behind the short term stimulus package, no one in government wants to look they are not trying to help, but if they must pass this stimulus package, afterward they need to move on to the long term government issues that are harming our economy, over spending, budget deficit year after year, bad government regulation and the problem with the tax system.