Sunday 24th of January 2021

Did the Economic Stimulus Plan Stimulate Our Economy?

In February of 2008, legislators passed a bill that devoted $168 billion to boosting the economy. Now, some lawmakers and economists are saying it’s time for round two. The cornerstone of the first package was sending rebate checks to Americans to spend however they like. And it worked, to an extent. Our gross domestic product increased from 0.9% to 1.9% in the second quarter. However, this slight jump was significantly less than economists anticipated, and it will probably peter out by the time the third quarter rolls around. So what do we do to get the economy up and running? In this post, we’ll discuss that issue.

Another Stimulus Package?

Democrats and Democratic presidential nominee Barack Obama are all clamoring for another stimulus from Congress. They say it could include anything from another round of tax rebate checks to more food stamp payments to increased spending on infrastructure. Of course, a second one would be ever so politically expedient because it’s an election year, and voters consistently cite the economy as their number-one issue.

The Drawbacks

As much as the voters and politicians might want a quick fix, economists caution that another stimulus package is not fiscally sound. One economist says the case for another stimulus now isn’t nearly as strong as it was earlier in the year. This same economist, chief of Global Insight, predicted that the U.S. had a 70% chance of going into a recession at the beginning of this year. Now, though, as he looks to 2009, he predicts only a 15% chance of recession.

The Real Solution

According to some economists, the best way to stimulate the economy is with monetary policy. The Federal Reserve has cut interest rates from 5% to 2% since the conclusion of 2007. However, these rate cuts can take six to 18 months to have their full intended effect on the economy. In that case, when monetary policy is ineffective, a stimulus might be the only option.