Does Spending = Stimulus?
It seems as though much of the current debate in Congress around what is necessary to help kick-start the U.S economy centers on spending. I agree that spending should be the primary focus of this economic recovery but it is consumer spending, not government spending, that is critical. Consumer spending now accounts for over 70% of our Gross Domestic Product (“GDP”). As spending decreases, the economy begins to slow, and if severe enough, contract. As confidence wanes and more and more Americans are out of work, the American consumer will inevitably spend less and save more. While one can argue that perhaps we can all benefit from a re-emphasis on household saving, economic recovery efforts clearly can be hampered by increased savings.
Hence, the question then becomes what is the most appropriate course of action to get consumers to feel comfortable spending again? I do not believe that Government spending is the only way to promote, or rather stimulate, consumer spending which in turn would help to energize economic activity to a level that would lead us out of this current recession. However, it appears as though the Bill currently on the floor of Congress, that is likely to be passed this week, will rely primarily on Government spending to achieve this end. For the economy’s sake, I hope that it does work and that we begin to see tangible results of its effectiveness during the first half of 2009.