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¶ … stop the current recession from getting worse. Most agree that a massive fiscal stimulus is needed, but have different opinions about which types of fiscal policies would do the most good. Some are concerned that consumers won't spend income tax rebates, but may respond to a government-financed reduction in sales taxes. Others believe that government purchases may have a more direct impact that tax relief, but believe that producers rather than consumers will be the primary beneficiaries.
In the minority are those who argue that tax and spending policies won't really help stimulate the economy. As supporting evidence, they point out that America's 2008 tax rebates didn't make much of a difference. While this minority opinion may seem a bit extreme, one has to consider that severe financial distress can render government fiscal policy less effective than in less economically challenging times.
Perhaps there is no way to prevent the article's gloomy forecast where, on average, GDP per person falls by more than 9% from its peak and takes almost two years to reach bottom following severe meltdowns. By reducing taxes, the government is trying to increase the amount of disposable income in the hands of consumers. Yet, when consumers are afraid of their future employment prospects, it certainly seems plausible that they'll choose to save for future rainy days. When the government increases government spending by directly purchasing goods and services from private companies, it is trying to increase the flow of money through the economy. but, it takes time for this money to increase the disposable income available to consumers. This lag could be significant when private consumers are being hit so hard by declines in consumer demand. Thus, when we see the enormous dollar figures associated with stimulus package plans such as Obama's current proposal, it appears that they're trying to hit harder to make an impact.
Bibliography
Drastic times (2009, January 8). The Economist. http://www.economist.com/finance/economicsfocus/displaystory.cfm?story_id=12887385
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