Feel-Good Economics

Writing in the Wall Street Journal today, Bruce Bartlett agrees with The FDC that President Bush's proposed $800 tax rebate will do little if anything to "stimulate" the economy.

Now, don't get me wrong. I want to keep more of my money, and I like the idea of the government giving it back to me. Honestly, I wish they'd give me back even more. But, I don't have any hope that these one-time cash hand-outs will do what they are intended to do.

Bartlett also brings up Milton Friedman's concept of "permanent income" which we posted about in this space (see FDC post 1/15/2008). In short and $800 check isn't permanent income, but an immediate, permanent, marginal tax rate cut does increase permanent income, and would stimulate the economy. It's not only the immediate $800 (or whatever your tax savings may be) in your pocket, but the knowledge that the same thing is going to happen again, and again, and again is what spurs consumers to actually spend the money, rather than save it, or pay down debt.

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