Note: This post is not going to be funny. If you're not into economics or the potentially disastrous outcome of the stimulus package, please just stop reading now and head over to Perez Hilton or something. I hear someone famous whom you have no emotional attachment to might be pregnant and/or gay, and who doesn't want to know about that?
I've been discussing the stimulus package, slated for this summer, with several people over the last few days. I've gone back and forth with co-workers, family members, and friends over pros vs. cons, when the package means for the people who receive them, the government that doles it out, and the economy it affects in both the short and long terms. I guess it all boils down to this:
People are going to be happy when they open up their mail and see $600 "free" dollars staring them in the face. Until they realize (IF they realize, I should say) that the $600 is more than just a free check.
The government is going to have to come up with this money out of thin air; the country simply does not have the currency available to dole out that much money to that many people. They're going to have to print more money to accommodate everyone. Printing more money means more currency is out in the market (duh) and therefore the dollar will be worth less.
"But Andy", you might say, "what does that matter?"
Glad you asked.
Let's say you buy a bottled water for $1 today. Your dollar right now is worth enough to buy a bottle of water because the company who bottles it decided that they can afford to sell the water at that price and make an acceptable profit.
Now, imagine there's a stream of currency that flows into the market 3 months from now and then your dollar is worth 85% in June of what it was in March. This affects that bottling company in a couple of ways which in turn affect you: the profit they make at the current price of $1 is no longer worth as much as it was in March; and now that the company is getting less value out of their profit, they're likely to raise prices because it knows you have $600 more in your pocket and can afford a price increase.
So what happens? The most immediate effect is that prices go up on nearly everything. Food, clothing, gas, recreational activities, medication...you name it, the cost of it is most likely going to go up. Secondly, the money you have stored in savings accounts, stocks, and retirement benefits is worth less thanks to the influx of money into the market. This may not affect people my age all that much because we'll still live through several more economic cycles. Who it will affect are our parents and grandparents, as well as others who are planning to retire soon and have found out that their nest eggs aren't worth what they were worth a few months ago. My dad retired in January and I shudder to think what's going to happen to his standard and quality of life as he gets on in years and his savings is devalued over the next 6-12 months.
So basically the government is going to hand out checks in the hope that you'll just forget about the fact that we've flushed 750 BILLION into Iraq over the past 5 years, mostly after Saddam has been hanged (which last time I checked was the reason given to the American people for getting into this mess in the first place, not to fight Iraq's war for them). That $600 dollars will make us feel good about our government for about a week, maybe a month; then we'll see the dollar become even more devalued than before. This means that long after your $600 has been spent the prices that went up on the goods you buy will not be going down any time soon.
The bottom line: economics is all about cycles. There are always going to be periods of economic booms and busts (that's some good ole' Econ 101 for you; I won't charge tuition) and we're all going to have to ride the bone rollercoaster. But this package seriously messes with the cycle and extends the recession portion of the ride which can, and most likely will, mess with the upswing of the economy we would have normally expected in a couple of years. How much will the cycle be affected? No one really knows, but the leading theory is that we either will not see a turnaround until five years from now as opposed to two, and/or the upswing that occurs will not be as large as it has been in the past. Either one of those two scenarios are definitely unsettling and potentially disastrous.
But hey, $600! OMG! Now I can get that iPod/TV/cell phone/complete set of TMNT action figures I've always wanted!
Enjoy it while you can.