The Stimulus That Didn't Stimulate - Capital Commerce (usnews.com)

The Stimulus That Didn't Stimulate - Capital Commerce (usnews.com): "The Stimulus That Didn't Stimulate
August 08, 2008 11:22 AM ET James Pethokoukis Permanent Link


An analysis done for the WSJ finds that Americans saved rather than spent their stimulus checks. This is exactly what I said would happen. Well, actually, this is exactly what I said Milton Friedman said would happen. This from December 2007:
Back in 1957, Milton Friedman proposed something called the 'permanent-income hypothesis,' which said that people spend money based on what they consider their normal level of income and what they expect to earn over the long term. Short-term fluctuations in income, whether for better or worse, are smoothed out by more debt or less spending if consumers perceive the fluctuation as temporary. People adjust slowly to changes in income—just as the economy adjusts slowly to changes in Federal Reserve interest rate policy—which makes it tough for the government to fine-tune the economy. Short-term moves simply don't have the oomph policymakers expect, especially when the slow movement of legislation puts them out of step with the actual business cycle.
Tags: economic stimulus"