Unstimulating
Let’s turn the microphone over to
Amity Shlaes, who discusses Obamaian plans for an economic
stimulus by bringing up the inconvenient facts about the stimulus
plan passed earlier this year:
The limits start showing up with the tiniest of stimuli, those
government checks Americans received in the mail last spring. The
idea was that having the cash would cheer up consumers so that they
would start shopping again, helping retailers. That in turn would
revive wholesalers, shippers, suppliers — on up the production
line.But that stimulus failed, as the University of Michigan’s Joel
Slemrod and Matthew Shapiro noted. Interviews with consumers showed
that only a fifth said they would spend their cash.Savings rates tracked by the Bureau of Economic Analysis seemed
to confirm that, with personal savings rates rising about the time
the checks were mailed. Slemrod and Shapiro weren’t surprised. They
have spent much of their careers documenting failed stimulus plans.
Their study of the effects of the 2001 Bush stimulus was so damning
you might think that Washington would never repeat it. But
Washington did.One reason consumers don’t want to spend is that they don’t
react instantaneously, as Keynes posited they would. They follow,
rather, the theory of an economist oft-presented as the anti-hero
of the moment, Milton Friedman. Friedman’s permanent- income
hypothesis said that consumers consider their entire future, and
not just their mood, when they shop. If expectations of lifetime
earnings drop, then so will spending. That too tracks reality. Many
of us are beginning to wonder if we will ever get back the price we
paid for our houses.
Shall I mention again how Shlaes is right?
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