A landmark study done in 2002 and confirmed in 2008 by Civic Economics compared the local economic impact of shopping at two beloved Austin indie stores – Waterloo Records and BookPeople – to that of shopping at Borders. (At the time, the chain planned a new store across the street from the two stores.) The Liveable City study found that $100 spent at Borders had just $13 in local economic impact; the same expenditure at Waterloo and BookPeople yielded a $45 impact. (“Austin Unchained”, Austin Chronicle, 11/21/08).
Luis Uchitelle reports in the NYTimes that Obama “speaks of a recovery that would generate 2.5 million jobs in the first two years of his administration. That would require not just zero economic growth, but a fairly robust expansion — a swing in effect from the present 4 percent contraction to a growth rate of 2.5 to 3 percent a year. Achieving such a swing would mean adding nearly $1 trillion in annual output to the economy. ”
The trick is figuring out the proper combination of outright spending and lower taxes. In public Senate Budget Committee hearings, Mark Zandi, chief economist at Moody’s Economy.Com, said that every $1 of direct spending for public works creates $1.50 or more of economic activity as those dollars are spent in local economies on household costs.
This multiplier effect is missing when taxpayers receive a tax break because they may not spend the savings. The stimulus payments issued this year failed to stop the contraction of the economy because some of the windfall was saved while some was spent on imported goods which does not add to the nation’s economic output.
In dollars, this means that the government could spend “just” $750 billion on direct public works to achieve a $1 trillion rise in output while a stimulus devoted entirely to tax cuts would require the full $1 trillion.
My advice, if you receive an additional stimulus tax cut, spend it in your local community on locally produced goods.
