Sunday, January 27, 2008

Some Thoughts on Fiscal Stimulus and Healthcare Reform, part I

Bear with me here, as I know that the title of the post has put you right to sleep. But please pour a fresh cup of coffee and stick with me....I promise that I'll at least get you thinking. My motivation has been some thinking I've been doing on the issue of healthcare reform; specifically what sort of political change is necessary to get the nation truly interested in a major restructuring of the American healthcare system.

First, a tiny serving of the dismal science in the form of some (very basic) economics. The current Congressional debate about a fiscal stimulus plan is driven by the concern that the economy is in a recession. Technically, the economy is in a recession when it does not grow for two quarters in a row. In simple terms, economic growth is defined as an increase in the amount of goods and services produced by the economy. Economic theory tells us that spending will get us out of a recession. The last recession was in 2001 and it prompted a fiscal stimulus in the form of rebate checks to American taxpayers. Most economists agree that the 2001 quick-fix did help to spur economic growth. But the spending did not spur increases in productivity, the real ticket to long-term economic growth. So 7 years later, and with problems like inflationary pressures and the popping of the housing bubble in the news, we've got trouble again. The dreaded r-word.

In 2001, when the Bush Administration paid out checks for a fiscal stimulus program, Americans spent the money as directed. The idea was that a quick infusion of spending would get the economy back up to speed. Most Americans, with our abysmal savings rates, needed little urging to spend extra cash and so we complied, spending the better part of the money paid out (which averaged $300 per taxpayer, more for people with a kid on hand). Our top three spending priorities in 2001: clothes, healthcare spending, and shoes (in that order). Clothes and shoes don't jump start the economy much because most of those items are made overseas, but they must be shipped and distributed and so that sort of spending did help the economy, at least marginally. Healthcare spending was mostly domestic . And no matter how you slice it, the 2001 tax rebate did put money into circulation in greater amounts. And spending ----- of nearly any kind ---- is the cure for a recession. So the 2001 tax rebates helped get us out of recession.

That brings us to this month's debate about what's up with the economy. There is the well-known bursting of the housing bubble, of course. There is also the fact that consumer confidence has fallen in the last few months, a factor that resulted in less consumer spending, as people hold on to their spare cash in case of a future (economic) rainy day. Many people argue that all of this spells the dreaded recession. And as you now know (are you still reading?): the solution to a recession is.............spending.

You've been very patient to read this far. Later on in the upcoming week, in our next economic lesson, I will explain how healthcare reform may be the answer to our economic woes.

Update: I've corrected my definition of economic growth per the advice of my sister, an actual dismal scientist and lurker extraordinaire who pointed out that "...you could produce the
same # of goods & services this year as last...and if the dollar inflates the total
dollar value will be more. but did your economy grow? Nope. You made the
same quantity as before."

6 comments:

J.Bro said...

I've been trying to convince Missy to run a big "Stimulate the Scrapbook Superstore" sale with a bunch of $600 package specials. That's a lot of paper and stickers - I don't know how the average American consumer with $600 could say no.

We're putting ours toward closing costs on a house, because we've convinced ourselves that the first few months of a recession are a good time to buy our first house. Fortunately the housing market in Appleton is about half the price of the market in Madison. Time will tell if buying now was a mistake!

J.Bro said...

I should have noted that it pains us to do exactly what George Bush wants us to do with this bribe.

gautami tripathy said...

I entirely agree. We need to think about such issues. I stay in India. Our healthcare sector is like- less said the better..

Arty? Not me!!

Shari said...

Recessions are part of an economic cycle. I wonder if we are due for one again. Since spending is the solution to a recession, we may not really have one for awhile. Americans seem to still love to spend. I was in Walmart a few nights ago, and I commented to my son about all the people in the electronics department. It just blew me away that Christmas was only a month ago and they were already out buying electronics, DVDs, CDs, and Games.

sister AE said...

I am with you so far and await the next installment in this series.

Sharkb said...

Now if this healthcare policy could just include massage therapy I could benefit from the economic upswing. Woohoo!