Monday, November 17, 2008

"That translates into as much as $300 billion in stimulus - more than 2% of gross domestic product"

Good post on the WSJ:

"Economists and politicians have been raising the stakes on fiscal stimulus to keep the U.S. out of a severe recession.

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Yet very quietly, the cavalry has already arrived in the form of a roughly $90-a-barrel drop in oil prices over the past four months, slashing costs on everything from gasoline and home heating to business energy expenses. That translates into as much as $300 billion in stimulus - more than 2% of gross domestic product - without lifting a finger or adding to the budget deficit.

“I’m amazed that not more is being made out of it,” said Nariman Behravesh, chief U.S. economist at IHS Global Insight.

Behravesh’s forecasting rule of thumb is that every 10-cent drop in gasoline prices is equal to a $12 billion tax cut - one that’s aimed at lower- to middle-income households that pay a higher share of their incomes for energy. Businesses benefit, too, of course.

With gasoline prices now about $2 a gallon below their record highs, that translates into $250 billion to $300 billion for households and businesses, Behravesh said."

I've been saying that this is a stimulus.

Here, for example:

Don the libertarian Democrat Says:

“This example brings us to the final crucial area that the last stimulus package did not address, which is infrastructure investment. I urge this body to strongly consider including funding for infrastructure projects in a second package.’

I believe that this should be the major thrust of the new stimulus package. Declining oil prices can be seen as giving the consumer a bit of a stimulus."

And here:

"Tobias Levkovich, a Citigroup equity strategist, said lower gasoline prices would act like a more than $150 billion stimulus for U.S. consumers."

This would seem to favor a government stimulus directed at infrastructure, say, since the drop in the price of oil has, in effect, given a tax break or stimulus to the consumer.
10/25/2008 11:06:42 AM"


"Chris Varvares, president of Macroeconomic Advisers, estimates the effect on consumers alone from the drop in energy prices at around $135 billion. Mark Zandi, chief economist at Moody’s Economy.com, estimates that if oil prices just stay under $75 a barrel - December crude settled just below $55 Monday - it’s worth the equivalent of a $200 billion stimulus. If oil prices were to eventually fall to around $50 a barrel, hardly a farfetched notion, the stimulus would climb to $250 billion.

“It’s not widely talked about,” Zandi said, since “that benefit is getting overwhelmed by all the other costs” from the credit crunch and negative wealth effect on asset values.

Still, economic officials are missing out on a golden opportunity to talk up the economy’s sole bright spot during the most critical spending season of the year, especially given that their policy actions seem aimed as much at improving psychology as anything else.

Though the drop in energy prices will likely stick, “it’s happened so quickly it still hasn’t sunk in people’s minds,” said Georgia State University forecaster Rajeev Dhawan, who pegs the stimulus at $200 billion for consumers and businesses."

Here's my comment:

Actually, thank you for spotting this. It is a stimulus, and should be taken in to account in deciding how the government stimulus being considered be spent.

For example, maybe spending more on infrastructure.

Comment by Don the libertarian Democrat - November 18, 2008 at 1:58 am


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