On February 13th, President Bush signed the $168 billion economic stimulus package which he termed a “booster shot for our economy”. Will this rebate package prevent a recession? Well, I’ve been arguing that we aren’t in recession (more on that later) and won’t have a recession this year, but if we are headed for one, this sure won’t keep it at bay. Tax rebates have been tried in the past and have never produced the expected “stimulus”. These rebates are supposed to encourage consumer spending, but it has been shown that previous rebates were more likely to be saved than spent. And the same will likely be true of this one as well. And it’s not true savings either since the government will have to borrow the money for the rebates. Any increase in private saving will just be offset by increased government borrowing. Economic result? Zero.
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