Economic Stimulus Plan: I Beg To Differ

President Bush has proposed a $500 tax rebate to every American that pays taxes in order to help stimulate the economy. If you haven’t noticed, the economy has been in the “dumps” of late and it doesn’t appear to be improving. I would venture to even say that the economy may in fact be in a recession. Granted, I am not an economist, but the signs are rather obvious to any American that follows the news or has capital invested in the market. The slumping real estate market is probably the best indicator. Even the chairman of the Federal Reserve has signaled to Congress that something must be done, but I don’t think that $500 to every tax paying American is the answer.

The question that you have to ask yourself is what would you do with an extra $500? In today’s world there isn’t much that you can do with $500 except pay down debt. I venture to assert that a majority of Americans will in fact pay down some of their debt with the extra cash. I’ll be the first to tell you that I will be trying to cut some of my debt with the extra cash. It is a general rule of thumb; at least in the economic world that paying down debt will not stimulate the economy in the way that the president hopes. Think of it this way: if you paid off a credit card with the extra money, what have you bought? $500 is simply not enough to force more demand in the market for much of anything, hence the flaw with the plan.

So, what should the government do? The president does not have that much control over the economy, at least the amount of control that the media would have you believe. Nor does the Federal Reserve Board, as they technically do not lower interest rates, they simply recommend lowering interest rates. In this case the “Fed” should recommend a drastic lowering of interest rates if they wish to stimulate the economy in a more immediate fashion. I’m not talking about quarter or half points, I’m talking in the way of whole points. The exact number is debatable, but I do believe that it would breathe a breath of fresh air into an economy starving for air. The point is that it would quell investor’s fears on Wall Street where the recovery would start and then so on throughout the economy.