The Paradox Of Thrift: Alive And Well

From Capital Gains and Games:
"That's what the Bureau of Labor Statistics reported last Thursday. 49% of the tax rebates were used to pay off debt, and 18% were saved. 3% could not be determined. Just goes to show that there's no quick way to stimulate the economy. It's takes time to get spent."

TW: You may recall my posts from early this year when the stimulus program was being defined. Conservatives yelped wanting the stimulus to be primarily tax cuts as they allegedly would act faster on the economy. The retort of many was to refer to the Paradox of Thrift whereby when times get tough folks curl into balls and stop spending their incremental dollars. The evidence above supports that thesis as less than a third of the tax rebates were spent. Dollars must be spent in order to stimulate otherwise one gets a circular treadmill of nothingness- the government borrows the $, gives it to citizens who save the same $ resulting in zero net impact on the economy.

Hard core supply siders would say but wait, rebates are not the same as long-term cuts in tax rates. The evidence on that is murky but if one is to cut long-term tax rates then would not the long-term deficit explode? Oh no, would say Larry Kudlow, if rates are cut (especially for wealthy folks) total tax revenue will grow, oh really...