Consumers’ spending makes up for incentives

Some Americans are criticizing the government's Cash For Clunkers program. They are focusing on the $4,500 incentive, but it is the $20,000 or so that the consumer is spending that will stimulate the economy.

Don't worry about the $4,500. The government will get that back, and maybe more, in taxes that the car dealer, the car salesman, the butcher and baker and everyone else down the line will pay on salaries and profits. It's a multiplier effect.

Cynics say that the same thing could be accomplished by giving “Joe” a tax cut. But the whole reason we are in a recession is that Joe is not spending his money, he is hoarding it because he fears he may lose his job. And, ironically, by not spending his money, he increases the chances he probably will because then other people cannot buy his company's products or services.

Don't obsess right now about government debt. We are jump-starting the economy, and with a booming economy the debt will take care of itself. The Fed can then tighten the money supply and adjust interest rates to keep the threat of inflation at bay.

Martin Dessures

Central City