Some 70 percent of economic growth over the past years was a result of consumption. Now that consumption is slowing down — with lower retail expenditure during the Christmas season and dropping charges to credit cards — a tax rebate will again fan consumption.
It will not do a thing to increase savings, from which future investments can be made, writes Wolfgag Grassl. We all know by now that the way out of a recession is through the building of capital goods, not through the temporary fattening up of American retailers and Chinese manufacturers.
Second, government can finance its largesse only by either raising taxes — if for political reasons not now, then in future years — or by borrowing even more. Already today, total public debt amounts to over $9 trillion, or two thirds of annual GDP. About 44 percent of it is owed to foreign entities. It will have to be paid back — whether through years of lower consumption, or domestic inflation, or a reduction in the external value of the dollar. FULL ARTICLE