Economic Stimulus Plan

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Dear Sue,

I found your recent discussion (last Friday’s Home $$s and Sense column) about a possible plan for renewed prosperity in 2009 quite interesting. An Economic Recovery Act where every household in America would receive $100,000.00 would be a quick way to get money directly to Main Street and the people who live near it.

Currently, a government stimulus package is being discussed in Washington, but that plan for recovery focuses mainly on funding being provided to federal, state and local agencies for public investment projects. While the plan will help get the economy back on track, there will be a delay in getting the funding into the mainstream economy.

Also, the multiplier effect comes into play. The multiplier effect is the chain reaction process that takes place when one's spending for goods and services becomes another's income, and then that person's income in turn is spent elsewhere, thereby becoming another's income, and so forth, that spreads throughout the economy.

For example, an initial outlay of $5 billion, through the spending and re-spending process, can have a cumulative economic effect of $20 billion.

The multiplier effect for government spending generally has less impact on stimulating the economy than private consumers' spending, but without doubt it does help.

Locally, continued construction funding of the delayed Highway 65 bypass project in Lincoln could be resumed with immediate benefits to our regional economy. But other government public investment projects, now only in the planning process, “not shovel ready”, would have little economic impact in the short run.

Ideally, funding could flow to both the private and public sectors thereby maximizing the best outputs of both for stimulating the economy.

Johnny "HO" as in "HomeTown Optimist"

Dear Johnny,

Thank you for the insight!

Yesterday the Federal funds rate was lowered to somewhere between .25 and 0! There was also talk of using every tool possible to stabilize the economy. I wish that you could have been an advisor in yesterday’s meeting. Your insight may have expanded thinking beyond the interest rate as the only economic stimulator.