Defying the stimulus

by Rob Horning

6 May 2008


According to the logic by which the fiscal stimulus package was passed in February, Americans are supposed to go out and immediately spend the $600 or so we are due to receive over the next few weeks. That way we’ll be stimulating demand for American-made goods and services, helping keep the country out of recession. Do your part and shop!

I, for one, will be doing no such thing personally; faulty withholding left me owing that money (and then some) in taxes. And judging by this Bloomberg article (via Yves Smith), I won’t be the only one defying the logic.

Consumers are being hit by a triple whammy: rising prices, increasing unemployment and shrinking wealth. Companies have cut payrolls for five straight months, by a total of 326,000 workers.
House prices in 20 metropolitan areas fell 12.7 percent in February from a year earlier, the biggest drop since S&P/Case- Shiller began tracking the data seven years ago.
``We’ve had a very significant deterioration in the financial position of households in the past year,’’ Sinai says. ``Consumers can’t tap their housing equity any more.’‘
Household debt has risen more than 85 percent since the middle of 2001—the last time the government handed out tax rebates in a bid to spur the economy. That has prompted some on Wall Street, including David Rosenberg, Merrill Lynch’s North American economist in New York, to conclude that consumers will spend less this time, paying down debt instead.

That makes you wonder if this money wouldn’t have been better spent on programs meant to reduce mortgage debt; that $125 billion or so could have been used as money to take the sting off government-mandated cramdowns.  That way, foreclosures might be forestalled, and the housing market—the source of much of the economy’s problems—would have a chance to find its bottom. Instead, perhaps out of some notion of fairness, everyone is getting the free money. The ones likely to spend it on consumption are probably those who least need the cash or the items they will buy. That doesn’t particularly seem any more fair when you think about it. People like me shouldn’t be given flat-screen TVs by the government.

As the article notes, retailers are trying hard to get their piece of the checks: It cites a Sears incentive of offering a 10 percent premium on checks converted entirely into Sears gift cards, and an unspecified plan of Wal-Mart’s to lure shoppers. By the logic of the stimulus package, they are doing their patriotic part, trying to encourage citizens to do what they are supposed to with the checks instead of saving them, which would be horribly detrimental to the purpose of the checks. (Maybe the government should have purchased goods and services directly—start building roads and such, WPA style. Then we could really get deep into the Depression-era nostalgia.)

It all seems insane. When you remove the macroeconomic blinders, it’s hard to see the problem with the U.S. economy as being that people don’t spend enough. Nonetheless, in order to get debt-ridden consumers to spend even more, the government has handed out money to these overspent people, which has had the effect of ramping up the marketing schemes of some of the largest retailers to get them to continue to ignore underlying economic realities. Wasn’t the problem that people spent more than they had, and they went into debt they had no hope of repaying to be able to spend even more? If anything, aren’t Americans virtually addicted to shopping, and unable to conceive of any other course of actions to satisfy their needs, which are all supposed to be solved with the act of buying some product? Are we trying to protect the economy or the ideological superstructure of the consumer society, that enshrines such spending as the most essential civic and self-fashioning act? Is the stimulus package an admission that we can’t even pretend to separate the economy from the consumerist value system any longer?

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