Tax rebates: How big a boost?
The $107 billion stimulus is now flowing to taxpayers, to spend or save as they see fit.
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Furthermore, stimulus checks are something of a proven technique. Washington has approved individual cash rebates at least three times in recent history: in 1975, 2001, and 2003.Skip to next paragraph
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An analysis of the economic effect of the 2001 rebates published in the American Economic Review in December 2006 found that the effect of the checks on US consumer spending was "substantial."
Two-thirds of the money was spent within six months, according to the analysis. Much of it was spent on nondurable goods, flowing through the US economy at a relatively quick pace.
Though there are bad signs, "the recession is expected to be mild and short, mainly because policymakers are fully engaged in stemming it," Mr. Zandi writes in his latest outlook for the US economy.
The extent of the boost the checks may provide is a matter of debate, however.
A survey of 38 economists taken earlier this year by the Philadelphia Federal Reserve found that the median prediction was an extra 0.3 percent growth in GDP for 2008, and an extra 0.1 percent in 2009, because of the stimulus spending.
But the survey notes that "a wide divergence of opinion surrounds these median estimates," with some economists thinking the checks will have no effect, and others predicting as much as a 1.5 percent GDP boost.
Working in tandem
In general, the $107 billion by itself is not meant to blast the US economy back into orbit. Rather, it is intended to work jointly with the easier credit provided by the Federal Reserve's interest rate cuts, to provide a temporary boost.
Think of it as a bridge that might allow the US to avoid the depths of a recession and more easily cross into the good times to come.
From an economist's point of view, the more quickly the money gets spent, and the less of it that gets stashed away, the better.
And US retailers will certainly do their best to suck the money out of consumers' wallets, with everyone from Wal-Mart to the corner store offering rebate-check deals and putting up signs keyed to check arrival.