Stimulate Your Own Economy

Both the Executive and Legislative branches of our government have a particular way they would like for all of us to handle our stimulus rebates. The Judicial branch may have an opinion as well, but so far they’ve kept quiet about it. Personally, I’m looking forward to seeing a grainy film of Antonin Scalia helping Anthony Kennedy carry a new flat screen TV into his house on YouTube.

There are three reasons I don’t like stimulus bills. Historically their performance is at best mediocre and the rest of the time their success was more a matter of opinion than a matter of fact. I’ll get to the last reason shortly.

The packages have taken a number of forms over the years. Sometimes they implement additional tax deductions or credits. Other times they played around with dependent exemptions and capital gains. They have even actually lowered tax rates.
And then there are rebates, and this brings me to my biggest problem with stimulus packages: They only work if everyone follows very bad advice.

Our new President, whom I like very much and disagree with about almost everything, in alliance with the distinguished ladies and gentlemen on Capitol Hill want us to take that rebate check and cash it. They want us to take that cash and spend it. And not just spend it on any old thing. They would prefer, based upon my own highly scientific calculations, that we spend approximately 65% on consumer electronics and the rest on dining or entertainment.

These plans usually get talked about a lot before they are actually passed and signed into law. Discussions both public and private whip the population into a bit of a frenzy, and whether people are for the plan or against it, a certain anticipation begins to grow. Eventually when everyone knows it is just a matter of time, many won’t even wait for the checks. They will go out and spend money on credit. This has the effect (hopefully) of revving up the economy without even parting with any money yet. When the dough-ray-me finally arrives, they will often, too often, not bother paying down the credit cards. Instead, consumers will cash the check and consume even more.

All of this has a very good effect on banks and credit card companies. It is great for stores and restaurants. And the politicians are delighted with their improved reelection poll numbers, but it really hasn’t improved the average taxpayer's situation at all. Certainly not in the long run.

So what is the best thing to do with that stimulus money? My recommendation is that you either pay down personal debt or save it. If you have no real savings but a fair amount of debt, then you should definitely pay down the debt. True, it is good to have some savings, but if you have none…zero…zilch, then you are not a saver. Pay down the debt because even if you put it in a savings account, it won’t stay there.

Getting rid of personal debt or saving for the future will not have the effect on the national economy that DC is hoping for, but it will have a significant effect on your personal economic situation. In this case, a good significant effect.

Since I don’t think stimulus bills help much even in the best scenarios, I’m very comfortable suggesting you take care of yourself here and let Washington worry about the big picture. If this causes you to feel guilty, let me know and I’ll post an economics lesson I’ve titled Economies are Apathetic Psychopaths.