Stimulating Stimulus

I was eating lunch the other day when I overheard a conversation between a couple of people a few tables over. I am generally not in the habit of eavesdropping on anyone talking in my vicinity but when the people in question are speaking loud enough to be heard from across the room let alone from two tables away it's hard not to hear what they were talking about. In any case, they were talking about the fact that the latest economic stimulus being put forward in an effort to jump start the economy would begin appearing in people's paychecks in the near future and the group having the conversation was complaining about it.

Now everyone is entitled to their opinion but I think it's a little misguided in terms of complaining that this stimulus is any different than any other stimulus that has been proposed or provided. They were arguing the differences between the stimulus checks which many received last year versus the addition of a few dollars into their paycheck every month. Now in either case the end result to me seems to be the same. Whether we get a lump sum or we get a few dollars in every paycheck what the net result is expected to be is that by having a little more money we'll spend it and thereby inject it back into the economy. Given that fuel prices have been holding steady around $2 for a while (in most places) and that there is so much uncertainty with regard to the market, it's no wonder that many people are preferring to hold onto the money rather than give it away and that's where I think any differences in stimulus payments are wiped out.

What I mean is take for example the people who got $600 in stimulus checks last year. If they were in danger of losing their house to foreclosure would they go ahead and spend that $600 on luxury items (as was the initial hope) or would they spend it on their home? What about people whose 401(k) accounts have been slowly been turning into 41(k) accounts? Would they be more prone to inject that type of money into their retirement plans or plunk it into the bank hoping that even a little interest will keep the money afloat; that and a good deal of hope that the bank in question won't go under any time soon. What needs to happen or what decisionmakers need to understand is that the American culture is on the verge of changing.

Now I will grant you, there are people out there who probably blew that $600 stimulus within a day of getting it but there are a lot of others who have held on to it or used it for a matter of survival or sustainment and that's because to me it seems that the monetary conditions of the country have changed. A few years ago most everyone was doing fine financially so an additional $600 from the government would have seemed like a bonus so since you didn't really need it for anything else (such as paying the bills or your mortgage) then you would probably be more prone to spend it in the economy as was intended. What is different now is that people need this money and aren't willing to part with it so easily. If I'm worried that tomorrow the company I work for will suddenly announce massive layoffs or will close down completely, am I going to spend $600 like there's no tomorrow or will I hold it close? I think you can figure out the answer.

I think the approach of just giving money away in a check and then expecting that people will spend it like they have historically spent any bonus didn't take into account the difference in economic times. A few dollars added to a paycheck will likely have the affect of effecting people's spending habits and seeing spending return to the economy over a longer period of time but it will see it return nonetheless. Sure maybe not everyone will run out and buy a $15,000 home entertainment center like they might have been inspired to do a few years ago but that doesn't mean they won't continue to spend. Change takes time and it is often slow to come but it will eventually come. We just have to be willing to make the change.