Same As It Ever Was: Stimulus Checks Just Increased US Debt Load

Back in January, John Hussman predicted that Americans would only spend a fraction of their tax rebate checks. Martin Feldstein, head of NBER, says this is exactly what happened:

“Several years ago, Joel Slemrod and Matt Shapiro (former colleagues at the University of Michigan) estimated that only about 22% of the tax rebates provided during the last recession were directed to consumption, with the bulk going to savings and debt service. Given the much higher debt burdens today, I don’t expect this instance to be much different. In the end, the U.S. economy will carry a larger amount of U.S. Treasury debt, and a somewhat smaller amount of mortgage and credit card debt than it would have in the absence of the fiscal stimulus.”

Last week, Martin Feldstein, the head of the National Bureau of Economic Research (which officially dates U.S. recessions), confirmed this expectation: “The evidence is now in and that optimism was unwarranted. Recent government statistics show that only between 10% and 20% of the rebate dollars were spent. The rebates added nearly $80 billion to the permanent national debt but less than $20 billion to consumer spending. This experience confirms earlier studies showing that one-time tax rebates are not a cost-effective way to increase economic activity.”

Of course, this won’t stop Obama and McCain from mailing out another batch. Nothing like checks in the mail to persuade people you’re trying.

See Also: Where Government Stimulus Checks Really Went: Porn

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.