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Where Will the Stimulus Go?

Congress is expect to throw hundreds of billions of dollars at the collapsing economy in order to turn it around:

House Democrats are circulating an $825 billion economic stimulus measure that emphasizes health care, education and highway construction as well as tax cuts for individuals and businesses.

A summary of the measure shows spending totaling roughly $550 billion and tax cuts of $275 billion, although the totals are expected to shift considerably as Congress works on the bill.

But, it won’t work. For the first time since the Great Depression, several generations who have never experienced a serious economic downturn, are going to become conservative in their spending and saving habits. You can give these folks $500 or a $1,000 in stimulus, and all the first thing they are going to do is use it to pay off mounting debt. The second thing they’ll do is save it in case the situation gets worse.

To compound problems, the federal money is going to flow down to the states. However, the states, facing serious problems of their own will not spend the money on new projects. Instead, they will use the lion share to fix current budget shortfalls.

This is all doomed to failure, which means several more rounds of economic stimulus will be tried.