Wednesday, October 29, 2008

The economic impact of various stimulus packages; Why isn't the precipitous decline in gas prices included?

Here's an interesting piece on the economic impact of various stimulus packages. Part of Congress' proposed $300 billion package will likely include several of these features (extended unemployment benefits). From the Economic Policy Institute (via Moody's):
"As money is spent, it creates beneficial ripples through the entire economy. The evidence is that most of the money from the recent tax rebate was saved rather than spent, thus blunting its stimulative benefit.1 By comparison, other options—such as infrastructure spending, aid to states, food stamps, and unemployment insurance (UI) benefits—are much more cost-effective because they target the needs most likely to channel money back into the economy. Mark Zandi from Moody’s estimates that each dollar of refundable tax rebates only boosts GDP by about $1.26, while each dollar of infrastructure spending could provide a $1.59 boost. Not only are many of these stimulus options more effective, but they also have the added benefit of assisting those hardest hit by the downturn and tackling long-standing infrastructure needs that would lower transportation costs, decrease traffic, and increase business productivity."
RW: I am surprised that a decrease in gas prices is not included on this chart. I read that (Deutsche Bank probably) for each 10 cent decrease in the price of gasoline, $1 billion in annual energy consumption dollars are added back to GDP. Therefore, the $1 decline in the price of gas since last month to $2.66/gallon translates into roughly $10 billion more on consumer energy spending (at an annualized rate). Now that's an economic stimulus, and the taxpayer doesn't even have to pay for it!

Rebecca Wilder

1 comment:

  1. It may not be on the chart because Congress has no control over gas prices per se. Aren't you glad they don't?