Businesses Need New and Real Promises from Washington
John Ligon /
While legislators finalize yet another round of stimulus spending, they should self-impose a time-out to assess the ineffectiveness of the last two years of government-directed stimulus. After two years of repeated government stimulus programs, the economy remains either in recession or in very slow recovery and yet the federal government continues to tinker with new ‘stimulus’ programs financed with bloated deficit spending.
Recent NBER research focusing on the 2008 tax rebate stimulus reveals that there was only a modest per dollar stimulus effect. Indeed, households that found themselves short of money did not go out and spend their rebate checks as many in Congress thought they would. In technical terms, these households showed a very low marginal propensity to consume -– an MPC roughly equal to 0.3. Low-income and low-wealth households did not report spending more as a result of the rebate, and households with expected income growth are substantially more likely to spend the rebate than those with expected income declines.