The whole point of a stimulus package is that consumers are encouraged to use more goods and services so company's have a greater demand for workers- the more people working, the more people spending. Never has a stimulus package of such a large amount been conceived in the world however, let alone in America’s history.
Fiscal Policy
But when was the last time America used fiscal policy of a large amount to combat a recession? And most importantly, did it actually work? The answer is only as far back as the beginning of 2008 where the American economy was given a short term boost through 168 billion dollars in tax cuts and rebates. What eventually occurred however is that the extra money was only used to pay off debt or put into savings accounts- both examples of money not being used in direct economic activity. And the fact that another stimulus package has had to be created testifies to the short-term solution of the 2008 package.
Economists however have a grim outlook on fiscal policy as a whole. Many believe that the only way to combat the recession is through monetary policy- when the Federal Reserve issues more money into circulation thereby increasing demand and lowering interest rates. But the current global economic crisis seems to be in such dire straits that even monetary policy cannot help. At the beginning of this year the American economy went through a liquidity trap were despite the Federal Reserve’s offer to provide money to banks at virtually zero rates, the banks could not make new loans due to the worst recession since the Great Depression.
Short-term solution?
So more money in the pockets of the American people, even if only a short term solution, might give the American economy the jump start it needs- and as President Obama justified, it certainly is better than doing nothing at all. Millions of unemployed Americans would have a job to go to in the morning (many jobs being created by the public projects of the stimulus itself) and thus millions of Americans will begin to spend causing the economic wheels to start moving once again (up to four million jobs will be created or saved by the stimulus package). But the stimulus package is not only for jobs but to modernize schools, invest in renewable energy, and create and maintain new roads and utilities. Even in its funding of education the 2009 stimulus package is the largest increase in aid that America has ever witnessed for schools and universities.
Controversy
The multipurpose stimulus package has also won a lot of enemies- especially on its emphasis on things outside of economic recovery. Some examples include the hundreds of millions of dollars that will be spent on contraceptives, helping consumers switch from analog to digital television, and the repair costs of ‘national treasures’ like the Jefferson Memorial building. The other drawback of the stimulus package is that in today’s attention deficit society anything other than a quick fix scheme is not going to be popular in the long run. Very few elements of the stimulus package for example are going to be effective before 2009 sees its end, and even deep into 2010.
Patience
President Barack Obama in his public address regarding the stimulus package has asked for patience and confidence from his country and is not conforming to any fast return, short solution policy. All that is left now is the dreaded waiting game to see what changes, if any, the stimulus package (or recovery package as Obama has renamed it) makes.
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