Bubblesofearth wrote:NeilW wrote:Bubblesofearth wrote:Maybe there are examples where fiscal stimulus could reduce spending but I confess I'm scratching my head a bit.
You have to be a mainstream economist and believe in "fiscal crowding out" - which is based on the idea that there is a fixed amount of money that swaps hand at a certain price. There isn't a fixed amount of money.
NeilW
Let's assume I'm a typical Western consumer. If I'm given more money I will tend to spend more. More stuff, more holidays etc. That seems to be the way most people react to largesse. So why would a fiscal stimulus not give rise to increased spending generally?
Put another way, a fiscal crowding out of my Easter holiday might have me going away in the autumn as well. Next year this is exactly what I'm planning. Not from direct fiscal stimulus but from a combination of money saved last year and a desire to 'catch-up' on enjoying the rest of my life.
I get the impression a lot of people are thinking like this just now.
BoE
I think you have a point here. i.e. lots of pent-up spending when the curtain of covid lifts.
I guess what you have to counter that with is the number of people who won't be able to spend because they used to work for small business that have since collapsed. Or larger businesses that have laid ppl off - a lot have.
Lots of people might have loans/rent arrears etc. to pay off.
What we need the difference in unemployed from the summer of 2019 (for instance) and now, and try to figure how much consumer demand is down as a result.
Also, personally I could be one of those whose saved and invested more in the covid period. Perhaps lots of US recipients of stimulus cheques, will have bought on the SP500, if they didn't really need the cheque. I can't see that many cashing the investment to go on 2 holidays the next year, since Yanks get a lot less holiday entitlement than us....although they may spend on a new SUV etc.
I guess the kicker will be if lots of ppl remain unemployed whilst small+medium recover/start again.
Matt