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Economy
Commentary: Targeted Stimulus May Be More Effective
Economy

Commentary: Targeted Stimulus May Be More Effective

Nearly half of lower-income Americans rate the economy as “poor”

by Dennis Jacobe

PRINCETON, NJ -- Early last week, the Federal Reserve cut the fed funds rate by ¾ of a point -- its largest such cut in more than two decades. President Bush and Congress followed by announcing a proposed new fiscal stimulus plan. In almost any historical context, these actions would be interpreted as a panic response on the part of economic policy-makers to their fears of a complete collapse of market confidence in their stewardship of the U.S. economy. At this point, it appears that the markets have stabilized -- at least until after the president's State of the Union address Monday night and the Federal Open Market Committee's meeting on Tuesday and Wednesday to consider a further reduction in interest rates.

Of course, in addition to stabilizing the financial markets, these recent actions -- the sharp drop in interest rates and the proposed fiscal stimulus plan -- are aimed at increasing consumer confidence and consumer spending. Unfortunately, Gallup's recent polling suggests that these efforts have done essentially nothing to improve consumer confidence in the immediate term. Polling data also suggest that the fiscal stimulus plan as proposed might need some adjusting to increase the benefits for lower-income Americans, who currently are most lacking in consumer confidence.

Consumer Ratings of the Economy

Right now, 33% of U.S. consumers rate current economic conditions as "poor," according to Gallup's polling during Jan. 22-27, 2008. This is up from 25% in Gallup's Jan. 4-6 polling and 29% in the Jan. 18-20 polling just prior to the Fed's rate cut. In fact, this is the highest percentage of consumers providing this "poor" rating of the economy since Feb. 17-19, 2003, when 34% held a similar view of the U.S. economy just prior to the beginning of the war with Iraq.

As might be expected, consumer ratings of the economy are not as high among lower-income Americans as they are among those having higher incomes. In fact, 45% of those making less than $24,000 a year say current economic conditions are poor, while only about half as many -- 23% -- of those making $90,000 or more annually also say the economy is poor. On the other hand, even with all the concerns about the economy going into a recession, more than one-third (36%) of those making $90,000 or more a year say the current economy is "good" or "excellent."

Should the Fiscal Stimulus Be Increased?

Many economists and other cynics may see the proposed fiscal stimulus as nothing more than an effort to get some money out to the voters before the fall elections. On the other hand, giving consumers money to spend will certainly have a positive impact on consumer perceptions when the checks are mailed out, if not immediately. Still, the overall benefit of such an effort is likely to be short-lived and more psychological than economic.

If the basic objective of the fiscal stimulus is to create a short-term improvement in consumer psychology and thereby stimulate increased consumer spending immediately, then it follows that some consideration should be given to targeting the effort toward consumers who currently have the lowest confidence levels. Gallup's new polling data suggest that these are disproportionately lower-income Americans, who see the economy as much weaker than do those with higher incomes.

In turn, this suggests that -- politics aside -- some increase in the currently proposed fiscal stimulus plan may be desirable. While a carefully designed tax rebate can get some funds to these lower-income Americans, the most efficient way to get money to lower-income consumers is to extend unemployment benefits, increase the availability of food stamps, and expand other low-income consumer assistance programs. Such program expansion efforts have the added advantage of getting the benefits to those most in need while simultaneously assuring even greater consumer spending than the currently proposed fiscal stimulus.

Survey Methods

Results are based on telephone interviews with 2,245 national adults, aged 18 and older, conducted Jan. 22-27, 2008, and 1,023 national adults, conducted Jan. 4-6, 2008. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.


Gallup https://news.gallup.com/poll/103999/Commentary-Targeted-Stimulus-May-More-Effective.aspx
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