Was the economic stimulus plan a flop?
Marti Feldstein, a Harvard economics professor and former adviser to President Reagan, thinks it was. He figures that people only spent about 12% of their checks. The rest went into savings. Many dispute his methodology, but probably true that less than a quarter was immediately spent. The rest may have gone to pay bills or pay down credit cards.
If that’s the case, we sure didn’t get much of a bang for our $100 billion. But this analysis fails to consider how many people manage their money. If they paid off their cards in May, it’s likely that they’ll run them up again by November. They may have temporarily reduced their interest payments, but those balances will be coming back. If so, the stimulus checks could be the gift that keeps on giving.
These lagged effects are often missed when people try to figure out the economy. I think Professor Feldstein is wrong to give the stimulus a failing grade. At worst, it should get an incomplete.
Douglas R. Tengdin, CFA
Chief Investment Officer
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