September 12 2011|08.00 AM UTC

Erik Chang

Stimulating the Economy

Category: SR, UncategorizedTags: , , , , ,


The question on everyone’s mind is how do we stimulate the economy? While no answer is a guaranteed success, there are a number of options to look into.

First, the government could increase its own spending. It could release federal funds for the construction of federal projects. There’s no lack of projects to be accomplished and increasing state and local building projects means increased employment and money circulating in the hands of laborers and consumers. However, this is not a very wide segment and may not encompass enough of the public to make a significant difference.

Second, the government could try to increase consumer spending. This usually comes in the form of tax cuts. A tax cut through a rebate may instill a brief moment of confidence in the hearts of the public, but it seems the public is just as likely to save the money as to spend it, ultimately defeating the purpose of the rebate. One study showed that less than 18% of the 2001 tax rebates were used to make additional purchases and the US Department of Labor reported that only 40% of consumers spent their 2009 economic recovery payment.

Instead of a rebate, the government could cut sales taxes, thus giving consumers an incentive to go and spend, as South Korea has done. After cutting $19 billion in income tax in 2008, South Korea’s economy seems to be on the rebound.

Or, the government could try to increase consumer spending by lowering interest rates and allow banks to offer low-interest loans to homebuyers and business owners. However, in the case of Japan, low interest rates alone were not sufficient because their banks refused to print more money for fear of amassing debt.

Besides South Korea, what have other countries done to help stimulate their economies? It seems the UK is banking on an economic boost from the 2012 Olympics, with millions of tourists expected to visit.

Turkmenistan has opened natural resource extraction to other countries in exchange for shared construction projects that has helped put more of its people to work.

The key is which strategy will help to get the average American out shopping again. With the recent increased interest in coupons and deals, one other option is that the government could look into giving out limited time offers that can be used like checks to help with purchases. Which strategy would get you out shopping?

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