Paul Krugman, a Nobel Prize winning economist, recently noted in an interview that the stimulus package simply isn’t big enough to cover the current need. While this is a hot topic, I think one of his points that I think everyone could agree on is the simple psychology of a recession. When the government starts giving away money to encourage spending in an uncertain economic climate, the natural tendency is to save. From the interview:
“So you’ve only got $600 billion to fill a $2.9 trillion hole.” What’s more, he argued that $350 billion of the package slated for tax cuts will provide some, but not much, stimulus traction because households are likely to save rather than spend large portions of it. That’s the “paradox of thrift,” Krugman noted. Normally, encouraging savings is a great plus for an economy. But in a downturn, households (and businesses) worry about the future more, and decide to conserve resources and spend less — just when spending is needed most.
If we know this will occur en masse, then why can’t we steer the stimulus using specific payment forms.
In other words, Visa Gift Cards! The last time Americans received a check we received it from the Bush Administration via the US Treasury in the form of a check. We had to deposit these or cash them in a bank. However, just by taking a recent encounter with the government as inspiration, the FTC recently conducted their HD TV Converter box rebate program using gift cards. Why could not any consumer-focused stimulus be conducted in the same way. I would be more inclined to go down to Home Depot and Fry’s and spend several hundred dollars on some landscaping materials and maybe a huge HDTV, if it was in the form of a gift card.
