Stimulus Package

When times are tough (think: recessions), everyone feels more like saving than spending. If you didn’t already lose your job, lots of people around you did. Now’s not the time to buy that new gaming console. It’s time to save up, in case you’re next.

Yet that’s just the problem with recessions. They’re sustained by people not spending. If you think about what the economy is in the first place: it’s spending. When you spend, you create income for other people, and investment for other companies. Then those people and companies spend, and around and around we go: the merry-go-round of the economy.

Stimulus packages are measures designed to get people to spend, even when everything around them is telling them to save. This is a mainstay of Keynesian economics, which is the status quo of most major macroeconomic policies today.

Keynes was all about getting people to spend...but how? Stimulus packages can include anything that encourages people to spend. Maybe tax cuts, or stimulus checks. Maybe an increase in government spending, or public works programs. Maybe pumping more money into the system via quantitative easing. Maybe cutting interest rates, so borrowing is cheap. Some countries have even done a negative interest rate, which means they’ll pay you to take out a loan. Yeah. That happened.

If your head wasn’t under a rock in 2008 and 2009, you’ll know that the U.S. executed a fat ($787 billion) stimulus package via the American Recovery and Reinvestment Act. It included tax breaks, spending projects for job creation, and multiple types of assistance. Sometimes, people just need a nudge before they’ll put their hand in their wallets again.