Marty Feldstein on the economy

He says that the Bush tax rebates from earlier this year has not been effective. The tax rebates in May gave $48 billion to consumers, and spending rose by less than $6 billion, while in June the rebates gave $28 billion to consumers, and spending rose by $5 billion. That equals a total of $76 billion dollars in rebates and just less than $11 billion in increased spending. If the original goal of the tax rebates were to boost consumer confidence and spending, it failed. Only 14% of the money infused was put back into the economy.

He goes onto explain how Obama's tax-rebate plan is based on similar tendencies. Based on these percentages, $65 billion dollars in rebates (which he proposes) will only yield $10 billion in increased spending. Perhaps Obama should rethink it.

Addendum: Greg Mankiw relays some analysis from a friend of his at the white house:

"Prof. Feldstein assumes that the growth in consumer outlays would have been flat had there been no stimulus. He then observes that consumer outlays actually grew by $12 billion more from Q1 to Q2 that they did in the prior quarter, and attributes that to the stimulus. Many observers think that, without the stimulus, consumer outlays would have grown more slowly in Q2 than Q1. If this is the case (and we believe it is), then the effect of the stimulus is bigger than $12 billion."

Interesting, but they are presupposing a pre-stimulus decline in consumer spending of $55 billion in May and June, which seems a bit excessive.