Something that really stood out at me today as I was researching a couple of posts about the stimulus debate back in 2009 is the extent to which everyone had this kind of misguided concern that tax-side stimulus measures might be saved rather than spent. Both Mitt Romney and Barack Obama had different kinds of ways to deal with this problem.
But was it really a problem at all? It’s clearer with every passing month that a big part of the problem here isn’t just that we had reduced consumer spending, but that the bursting of the bubble left lots of people with unsustainable levels of debts. For wealthy households, extra saving would really have meant saving the money and would have done no macroeconomic good. But for the vast majority of middle class and working class households using stimulus checks to “increase savings” would have meant paying down debt. In effect, you’d be transferring debts off of household balance sheets and on to the federal balance sheet where, due to the federal government’s greater creditworthiness, they could be paid down more quickly.