Thursday, November 20, 2008

Stimulate This!

Well not exactly this kind of stimulation package but it enticed you to read this entry, did it not?

As you may well be aware, early next year every Taiwan citizen will be receiving a $3600 voucher from the government to stimulate spending. This is really in line with what a lot of nations are doing in order to keep their economies afloat through this financial crisis.

And I guess I am happy that something is being done instead of only hand wringing and hesitation. The medicine is bad any way you approach the issue but in many ways this crisis is aggravated by psychological factors. Even if this package is merely a placebo for the ills (I concede that it may just be), the psychological good it does will inevitably be positive. Believe me, people in Taiwan need more placebos like this in their dark economic hour to stay thinking positive even though it might be illusory.

Once again, it's psychology. Even if the package is just a drip in the bucket, it gives the perception that something is being done and this is important to people. I think the general consensus is that eventually the situation will improve but that it will take time. That's why it's a positive thing to relieve a little of the people's worries so that things (hopefully) don't sink so deep. Of course, the government has to nurture things in these dark times.

It's interesting to know that, even though many people are making the case that the package will do little or nothing, the voucher system instead of a tax break or cash back is more of a sound decision than it may seem. An economist makes this point...

"The standard stimulus package doesn't change incentives. It's a check from the government. The hope is that the receiver will spend it. But when you just send out checks from the government, whoever gets stimulated is likely to be offset by someone who gets unstimulated.


And even the people who get the money often save more of it than they spend.

That's why stimulus schemes based on giving people money have a poor track record of energizing the economy. Usually, the only thing that gets stimulated is a politician's approval rating."


What's interesting to note, though, is that Taiwan's government isn't just giving out cash or giving a tax break (which people can convert into cash and just save away without helping to stimulate the economy). People have to use the vouchers to buy products at businesses that issue receipts for purchases (which the tax department obviously likes since people pay their taxes (incidentally, this is the reason why the have the lottery on those receipts: it tries to keep businesses more honest about their books)).

Also, as implied in the report, some people have argued that the vouchers are just to buy voters since only citizens can receive them (that rules out us foreign paying taxpayers since we definitely cannot vote). However if that is the case, then why would a country like China also launch a stimulus package? It's not like they need to cater to their voters. However, they do need to keep its economy rolling to keep its citizens happy and that's purely psychological.

So there you have it. By me, the package seems reasonable as real stimulus or as a placebo or both. In the end, my Taiwanese wife for one will be spending her voucher with pleasure as will, I am sure, most of the people who receive one. Happy and positive spending!
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