NCPA - National Center for Policy Analysis


July 22, 2008

Washington can be counted on to create a crisis -- usually by sheer incompetence.  Then it rushes to the rescue, often doing more harm than good, say Ernest S. Christian, a deputy assistant secretary of the Treasury in the Ford administration, and Gary A. Robbins, an economist who served at the Treasury Department in the Reagan administration.

Late last year, with an impending recession, Congress rushed forward to spend more money.  The plan was to send $106 billion of Economic Stimulus Payments -- typically between $1,200 and $1,800 -- to millions of American families.

But after receiving their stimulus checks, people did not go on a spending spree:

  • Recent Commerce Department data indicate that less than 10 percent of the stimulus money is being spent on new consumption.
  • Overall, compared to last year, the quantity of consumer durables purchased has declined by 1.5 percent.
  • Retail sales are sluggish, and the economy has shed 460,000 jobs since December.

Other, more powerful government actions, including the Fed's extraordinarily loose monetary policy, have boosted inflation and caused families to restrict purchases:

  • The basic CPI market basket is now 1.6 percent higher than last year.
  • As a result, even before receiving its $1,200 stimulus check, a typical two-earner family with income of $75,000 will have already experienced a $1,200 decline in its purchasing power since last year.

So much for the stimulus plan; it's been wiped out by extra inflation, say Christian and Ernest.

Source: Ernest S. Christian and Gary A. Robbins, "Stupidity and the State, Part II," Wall Street Journal, July 20, 2008.

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