Economists Divided Over Proposed Second Stimulus Package

President Bush is considering sending out another stimulus package to US taxpayers, an idea that some observers greet with skepticism and doubt. Other observers think the new stimulus check will be good for the economy, asserting that the previous stimulus checks led taxpayers to spend the money immediately rather than invest it in savings or in debt payoffs.

On Tuesday a week ago, President George W. Bush expressed confidence in the US economy, despite its recent, protracted downturn. “I think the system is basically sound,” said the US President during a press conference. “I understand a lot of… nervousness [on the part of Americans]… but the economy is growing, production is high, trade is up, and people are working.”

Now, the federal government is thinking about trying, once again, to accelerate the economy’s growth, by sending out more checks to US taxpayers. Economists are divided about the desirability of this course of action.

Mark Zandi, working as an economic analyst with Moody’s Economy.com, asserted to reporters that, “another well-timed and target stimulus package would be helpful.” He also warned reporters, however, that “the downside risks [of an improperly administered stimulus package] are significant.”

Many economists are questioning whether or not the funds from an additional stimulus would move fast enough through the US economy to create a meaningful positive impact. They expressed the worry that many Americans would be tempted to spent the money from the stimulus checks right away, instead of investing it. This would not benefit the economy in a meaningful way; in such a scenario, the additional stimulus check would be a waste of much-needed funds on the part of the US government.

Joel Slemrod, an economics expert working at the University of Michigan, has a mixed prognosis for the spending habits of American consumers. He has looked at the data for how Americans have dealt with this year’s initial government stimulus checks, and has found some cause for hope, and some for despair.
“So far, we’re finding that 20% of the people say the rebate led them to spend more,” Slemrod told the press.

On the other hand, the rate at which people were putting money into savings accounts went up significantly this May, observed Slemrod. On average, the rate of people started saving 5% of their personal funds, as compared to a mere 0.4% in April of 2008.

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