Friday, July 18, 2008

Slate: You've already spent your tax windfall on gas and bread.

Citing Merrill Lynch's chief economist, Slate's Daniel Gross writes:
The chunk of the stimulus package likely to get spent is roughly equivalent to the amount Americans are paying for higher food and gas prices because of inflation. Put another way, you've already spent your stimulus at ExxonMobil.

Here's the math. Merrill Lynch is basing its calculations on two assumptions:
1. that Americans will spend only 40% of their rebate (and pay down debt with the rest, or save it); and,
2. energy and food inflation combined is costing us $50 billion per quarter.

Total stimulus package in rebates: $120 billion.
40% of 120 is 48 billion, eaten up in one quarter.

At first I thought, big deal, there are still three other quarters in the year. People might--operative word, might --choose to spend more than 40% of their rebate. Say, 100%.

$120 billion minus $50 billion minus $50 billion minus $50 billion (3rd quarter) minus $50 billion (4th quarter)...


We don't track the gasoline expenses in our house, but this year we're on track to pay $700 extra in groceries, not because the kids are eating more, or because of more organic produce, but simply the increased cost of everything at the store. $4.50 gasoline doesn't faze me. But $4.50 bread: I get sticker shock.

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