Empty Calories

Story Highlights:

• The bipartisan economic stimulus package emerging from the beltway today is unlikely to have a big effect on the US economy either way.
• The package, estimated to be about $150 billion in total, is probably not large enough to make a meaningful impact.
• Most of the plan is not incentive-based. Only about $50 billion of the plan is tied to business incentives that could stimulate increased consumer spending and business investment.
• Ultimately, this appears more a political affair than an economic one.

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The holiday hangover is here—those weeks in January where we suddenly realize our slacks are a bit tighter, and wonder how it all happened. Then we remember that third slice of pumpkin pie. With whipped cream. And two scoops of ice cream. It seemed like such a good idea at the time. But those empty calories that felt so darn good in the moment didn't give us any extra energy, just a thickening of the waistline.

Today's beltway economic stimulus package is the economic equivalent of that third slice of pie. You can read about the details of the plan here:

Taxpayers Would Get Checks under Economic Stimulus Plan
Staff, CNN.com

In our view, this plan is unlikely to result in much more than a political footnote.

First, the package is predominantly non-incentive based. It's primarily just a rebate check to taxpayers. In terms of generating economic activity, rebate checks are more like empty calories than real nourishment. Historically, simply giving folks a bit more money hasn't resulted in big economic stimulus, particularly in the short-term. To wit:

Don't Spend Your Stimulus Rebate!
By Brett Arends, The Wall Street Journal
https://online.wsj.com/article/SB120119972332913969.html?mod=hps_us_editors_picks

Think back to 2001, where the initial "rebate" of the Bush tax plan didn't do much of anything for the economy in the short-term. When the government cuts a check to a taxpayer, someone else has to finance that through the purchase of a government bond. So there is no real net injection of money into the economy, although it could mildly increase the velocity of money already in the system.

The rebate part of the plan accounts for about $100 billion. The other $50 billion is expected to include business tax cuts. Businesses are set to get tax breaks for equipment investment, and small firms will get greater leeway to write off their expenses. That could be a pretty good thing, but boy is it small.

In sum, this $150 billion stimulus package isn't big enough to accomplish a whole lot anyway. $150 billion is a very small portion of annual US GDP, and even smaller on a global basis.

Recently we've seen plenty of cogent, worthwhile perspectives on this plan. Below are a few. In the meantime, we're going to lay off the pumpkin pie for a few months and consider hitting the gym.

The Downside of a Quick Fix
Peter Coy, Business Week
https://www.businessweek.com/magazine/content/08_05/b4069000730236.htm

Money, and How Congress Perceives It
Henry Meers Jr., RealClearMarkets
A perspective on how Congress views money (hint: not like you or me).
https://www.realclearmarkets.com/articles/2008/01/money_and_how_congress_perceiv.html

Forget Economic Stimulus, Fix the U.S. Tax Code
Kevin Hassett, Bloomberg
https://www.bloomberg.com/apps/news?pid=20601039&sid=aBOTUGTBFee4&refer=home