Is The Stimulus Helping Ordinary Americans?

USA Today had a new poll out yesterday that found, among other things, that only 18% of the country says the Obama administration's stimulus "has done anything to help improve their personal situation." And I thought Matt Yglesias made a good point about this: The most widely dispersed elements of the stimulus -- the almost $300 billion in tax cuts, distributed to far more than 18% of the population -- were designed to be inconspicuous. Consumers were not supposed to realize what the tax rebate portion of the stimulus was going to "improve their personal situation."


I think this is a charmingly counterintuitive point, and worth lingering over. If you, the hypothetical dictator of a country mired in recession, were going to offer a tax rebate in the hopes of boosting consumer spending and aggregate demand in your fiefdom, you would have two options. First, you could issue a big lump sum check at the end of the year, or perhaps several smaller checks over the course of the year. Second, you could decrease tax withholding on each employee's paycheck. Both methods would boost short-run incomes by the same amount; the only difference is that, in the second case, most people wouldn't notice the boost -- it would come as a small, unmarked addition to their regular paychecks. 

Obama opted for the latter method, on the theory that people are more apt to spend "regular income" than dollars that come bundled as specially marked, one-time, lump-sum "stimulus spending." The whole theory -- backed by lots of behavioral research from Richard Thaler and others -- is that people shouldn't notice the money, and file it in a separate "mental account." And sure, there are limits to the counterintuitive charms of this point: The simple fact that people don't notice the stimulus dollars is not affirmative evidence that the stimulus is working. (Since it's possible to imagine people saving money they don't notice.) But the mere fact that most people tell pollsters they don't notice the stimulus is not evidence one way or another. Relax, USA Today.

Crossposted to the Daily Dish

(Photo: Flickr User: borman818)

Presented by

Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism. He was previously a fellow at The Atlantic and an editor at The Guardian. More

Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism, an economics blog that was recently published in book form by Simon and Schuster. He was previously a fellow at The Atlantic and an editor at The Guardian. He is also on Twitter.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus


A Stop-Motion Tour of New York City

A filmmaker animated hundreds of still photographs to create this Big Apple flip book


The Absurd Psychology of Restaurant Menus

Would people eat healthier if celery was called "cool celery?"


This Japanese Inn Has Been Open For 1,300 Years

It's one of the oldest family businesses in the world.


What Happens Inside a Dying Mind?

Science cannot fully explain near-death experiences.

More in Politics

Just In