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Flawed Logic Will Prove Unsuccessful

There is an article in today’s Journal about how 400,000 New Mexicans are going to receive $100 million to spend and boost the economy and a couple of thoughts jumped out at me.

The American Recovery and Reinvestment Act, enacted Feb. 17, gives $250 each to recipients of Social Security, Supplemental Security Income, Railroad Retirement and some veterans benefits. The state Aging and Long-Term Services Department estimates that 400,000 New Mexicans qualify for the payment, about 382,000 of them Social Security and SSI beneficiaries. Nationally, 60 million people are expected to get the payment.

First, off it is kind of amazing to think that approximately 20% of New Mexico’s population live off of Social Security and SSI. Factor in those now collecting unemployment, we’re looking at 25% – one quarter of our state population living on the dole. Wow.

The payments will be sent to eligible people automatically. Beneficiaries who receive checks will receive an extra check for $250. Those who receive their benefits through direct deposit will get an extra deposit.

“For a third of all Social Security recipients, Social Security is the only source of income,” said Stan Cooper, AARP New Mexico state director. “For those who just have to pay their bills every day, this is going to help with groceries or utilities or prescriptions.”

Okay, so at least two thirds of those folks are not completely on the dole. I guess that should make me feel better. It doesn’t, but I guess it should.

Taxpayers who received stimulus checks last year mostly saved or paid down debt. Legislative Finance Committee chief economist Norton Francis expects these payments to be spent, because “people now are running out of money.”

Francis said New Mexico’s economy generates about $60 billion a year in spending, so an additional $100 million probably won’t register as more than a blip. Even so, he said, “it will have a positive effect.” Recipients will most likely spend the money with local merchants in multiple, small purchases, he said. “They’ll go out to eat and stuff like that.”

With all due respect to Legislative Finance Committee chief economist Norton Francis, you’re only half right. The $100 million won’t register as more than a blip, if that, is a true statement. That people will take it and go out to eat with it is wrong. It doesn’t even agree with your previous statement that people are running out of money.

When people are running out of money, they don’t take a VERY, VERY small one time payment and spend it. Quite to the contrary, they take the money and hoard it.