Spend, Spend, Spend!

CNN reported on March 24 that a clear majority of citizens are going to use their tax rebates to pay off debt or put in savings. The so-called economic stimulus bill will give $170 billion back to taxpayers, or about $600 per individual and $1,200 per married couple. The professed purpose of this scheme is to help the faltering U.S. economy come out of recession. But economist Jared Bernstein is concerned about this news from CNN: “While [saving the rebate] is a valiant thing to do, what you want them to do is spend it.”

Despite having the title of ‘economist,’ Mr. Bernstein doesn’t seem to understand the concept of economic growth and capital accumulation. The economy can only expand, and therefore rise out of recession, with a solid base of capital. The only way to attain the funds necessary for this is through savings. Using Mr. Bernstein’s logic, we would all be rich and prosperous if only we spent all our money on plasma TVs and Cadillacs. Clearly it is unwise for an individual to spend his entire paycheck and go into debt, so why does Mr. Bernstein, and most economists, think increased spending and debt works on the national scale?