I recently saw a debate on Public Television between two economists. One strongly recommended a payroll tax holiday as a very good way to immediately get money into the hands of both businesses and consumers—with Social Security funded by the payroll tax funded instead during this holiday by TARP money. This is an idea that I and a fair number of other people have advocated for months because it is so sensible.
But the other economist in this discussion dissed the idea. Why? Because, he said, the tax rebates that the government sent out last year were mostly not spent. This money was mostly saved by the people who received the rebate. An objection that struck me as mind-numbingly silly.
First, because it made saving seem like a bad thing, though it was a lack of savings for years that has caused such great regrets today for so many Americans.
My primary objection to this argument, however, was that it failed to understand that a chunk of money, the $650 individual rebates or $1,300 rebates for working couples sent out last year, might well be saved, while an extra $15 or $20 a week in a regular paycheck because of a payroll tax holiday would just be cash-in-the-wallet and would almost certainly be spent by an up-against-it population.
This lack of understanding of real needs and real behavior by economists who are too smart and well-educated to look around them, preferring to operate from theory alone, largely explains Bush economics. And it might well drag down Obama economics as well if common sense doesn’t come to the fore.