Economic stimulus package deal reached

February 14, 2008 7:38:44 PM PST
Congressional leaders have a deal with the White House on an economic stimulus package to give most tax filers refunds of $600 to $1,200, and even more if they have children.

It's gratifying to see how quickly Republicans and Democrats were able to come together to pass this package. However, it is an election year. What will this mean for the country?

At the Great Harvest Bakery in Oakland's Rockridge district, I asked owner Terry McDonough if the economic stimulus package would help.

"It might. Yeah, it might. There's a few other things we can use around here."

Part of the government's plan is to give small businesses a bigger write off on the purchase of new equipment. But anyway you slice it, when a new mixer is $200,000 dollars and a new oven is three quarters of a million dollars, write offs and a few hundred dollars won't go very far.

"The only thing you can do is raise your own prices," says McDonough.

At U.C. Berkeley, economist Alan Auerbach sits on the advisory committee for the Bureau of Economic Analysis in the commerce department.

"There is some controversy and a lot of uncertainty about how much of a spending impact it'll have every recession and every down turn is different," says Auerbach.

Auerbach says this time around, housing has led the downturn, followed by the financial institutions that bought into the mortgage market. So, with property and stocks going down, people feel pinched.

Most folks we talked to today said they weren't going to spend the extra money.

"Properties are bad, stocks are going crazy, so I need to hang onto my pennies," said one consumer.

One consumer stated that "if you're watching the Dow Jones and watching it crashing, day after day, you never what's going to happen."

Saving the money isn't what the government wants. The negotiators of this stimulus package are deliberately targeting low and middle income Americans, figuring they'd be more likely to spend and help prop up the economy. With housing down and the markets down, people going out and buying stuff has been driving the economy.

And if feeling poorer causes us to cut back, it might actually make us poorer says Auerbach.

"Certainly if consumption takes a dive, we're going to be in a recession."

It's worth remembering we aren't in a recession yet. Outside of stocks and real estate, the rest of the economy has been far.