The Economic Stimulus Act of 2008 passed in February. The major part of this package was to send cash totaling over $100 billion to individuals and families in the United States so they would have more to spend and thus jump-start consumption and the economy. Most of the checks were sent in May, June, and July. As would be predicted by the permanent income theory of consumption, people spent little if anything of the temporary rebate, and consumption was not jump-started as had been hoped.
... formal statistical work shows that the rebates had no statistically significant increase in consumption.
~From Stanford professor John Taylor's paper "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong" (HT: Lee Coppock)
Thursday, May 21, 2009
All politicians and all high school students (and anyone else who thinks that government can fine-tune economic growth) should be required to look at and think about this chart. What it demonstrates is that government "stimulus" plans which take money from one person and give it to another have absolutely no impact on the economy. The silver lining to the current economic cloud is that we are accumulating plenty of evidence, such as this, that Keynesian economics is not only devoid of logic but devoid of results. Can we now drive a stake through the heart of this miserable beast? (HT: Mark Perry.) I have to repeat part of his post if only to ensure that this bit of valuable wisdom is disseminated as widely as possible.
Posted by Scott Grannis at 10:35 PM