Below is a video from NBC’s Today show.
Matt Lauer asked President Clinton what business leaders say is the thing that most prevents them from investing their hoards of cash in new hiring. The number one thing that Clinton mentions is the fact that demand is weak. The business leaders are not sure that if they hire, the products they make will get sold. (It’s funny how Nightly Business Report is asking the same question of business leaders night after night and they never get that answer at all let alone as the most important problem. Notice also that this issue is not the one NBC chose for the headline.)
I think President Clinton gets it mostly right. He goes a little off track in answering how to get the consumer to spend more. Rather than telling the consumer to buck up and have a little courage, he could have reiterated his ideas on mortgage relief as a way to free up the consumer from the fear of the loss of their house. I imagine that for some people the thought of being 10s of thousands of dollars underwater on their mortgages doesn’t make them feel confident to go out and spend a lot of their $1,500 tax cut.
Then he could have talked about the government consumption stimulus in spending for public works and supporting the rehiring of teachers. People who have jobs tend to spend more freely than the unemployed do. The spending by the newly employed makes consumer demand increase to the point where other people are hired to satisfy this new demand – rinse and repeat.
He could then mention that after these two major ways of stimulating the consumer spending had been put in place, a little political jaw-boning might help.
An action like the tax cut that will only stimulate the economy if those darn real people would only behave the way we wanted them to, reluctant though they may be, is not nearly as effective as one that takes the more direct route of the government just spending the money to buy stuff.
Maybe instead of giving the $1,500 tax rebates in cash, the government ought to run it like a credit card company’s reward redemption plan. The rebate could be redeemed for products, but not for cash.