Citizen at Large

"Readthestimulus.org": Stimulating Reading!

Hey all--Just a quick note of follow-up to my last post about the stimulus package.  There is a great website that is encouraging everyday citizens to actually read what is in the stimulus package--and it actually has the text on the website, with spreadsheets breaking down the proposed spending and all.  The website is officially encouraging Senate Majority Leader Harry Reid and President Obama to publish the full text of the compromise bill (being formulated now in conference) and give the American people the opportunity to read it and contact their legislators with their opinions on it.  Check it out at www.readthestimulus.org. 

The Approximately $800 Billion Stimulus Package

All the talk of the impending ~ $800 billion stimulus package has stirred up discussion about what are our town’s “shovel-ready” projects that could be funded by mere millions from this potential federal payout.  Our local newspaper listed the top ten most expensive projects that have been submitted by town officials to the state to possibly be funded by the stimulus package.  Some of these include: $42 million to fund a solar farm, $24 million to create a system of rail trails, and $15 million to fund an arts center.  I don’t know enough about the details of any of these projects to be able to fully evaluate their merits.  But I do know that for a town of roughly 20,000, these sound like really big numbers—especially big numbers for projects that certainly seem optional.  I suppose that is the point of the exercise, though, for town officials: submit pie-in-the-sky proposals and hope one or two get funded from the anticipated massive windfall from the government, er, that is, the American taxpayer, er, that is, the American taxpayers of the future. 

 

As I’ve listened to all the banter amongst the various viewpoints of the stimulus package what frightens me the most is that I myself have become so accustomed to the massiveness of the $800 billion number that it seems irrelevant if it’s increased to $850 billion or lowered to $750 billion.  And so I’m a little afraid that this is what’s happened to many of us, including our elected officials given the authority to make it a reality.    

 

Behavioral economists (those economists who will acknowledge that humans actually may behave irrationally at times) have noted this strange (“irrational,” they call it) phenomenon amongst consumers that causes us to evaluate price & cost in terms of percentages, instead of absolute values.  So for instance, if I go into the drugstore and see that one box of diapers is $30 and another box of diapers of similar quality is $20, I will certainly choose the one costing $20. Why? Well, of course, why wouldn’t I want to save $10?  But if I walk into a ski shop (which is exactly what I did last night) and am evaluating which pair of skis my husband should buy, a $10 difference in price on a set of skis in the $400 range wouldn’t motivate me in the slightest towards which skis I should purchase.  After all, we’re talking about a paltry $10, just 2.5% of the overall cost. In the box of diapers, $10 was a whopping 33% of the costlier diapers—a seemingly much more compelling savings!  But economists would say, $10 is still $10, so why wouldn’t a rational consumer want to save $10, regardless of the overall price of something?   

 

From my observation, borrowing money especially seems to lend itself to this phenomenon.  When I was attending Harvard Business School, the majority of my classmates were funding their very expensive educations through student loans, most through Citibank’s student loan program called CitiAssist.  What I noted was that because many people’s loans were already so huge, they would have no problem laying out $100 on a nice meal here, $300 on the big holiday formal there, and tens of thousands of dollars on big adventurous trips to Africa, Thailand, and Turkey.  The term “CitiAssist” became virtually synonymous with cash.  But the problem was, it wasn’t cash.  And another $1000 in debt was still another $1000 in debt that would have to be paid back, with interest.  But $1000 just didn’t seem like much compared to the $200,000 of debt with which many were graduating.  (To be fair, when taking out these loans, many of these folks were anticipating exiting business school with very high-paying jobs, which they, in fact, did.)

 

This is why the $800 (or so!) billion stimulus package frightens me.  It’s so easy for lawmakers to add a few hundred million dollars here or there, and we taxpayers hardly yawn—it all sounds about the same to us.  But in fact, every billion dollars, every million dollars, every thousand dollars, is that much more debt to lay on ourselves, our children, and our grandchildren. 

 

Whoops! I just read in the New York Times that the estimate of the stimulus package is up to $900 billion—just another $100 billion or so….

 

What are your thoughts on the size of the stimulus package and about what kinds of things are being included in it?

 

I didn’t even touch on the overall question of will this kind of stimulus actually work? Are you a Keynesian, and think it will work to help our economy recover, or do you align yourself with the Milton Friedman-style of economics, and think that we need to rely more on natural market forces to do the job?

 

Note:  It may be awhile for my next post because I am expecting to give birth to my fourth child any day now (hence, the reference to the box of diapers!) Please continue to post comments on this post or on any ideas you may have.  I will need to be “stimulated” too!