I wouldn't call this a new idea. This is the argument used by people that support lowering taxes as a solution to economic problems/high deb.
EDIT:  I guess I should have listened to his speech first, it does not apply to last year's tax rebates but it is used by people that suggest cutting taxes to increase citizen's debt paying abilities.
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I think it's a great idea. When millions of individual people are so strapped they can't move, then neither can the economy. In addition, the government then has to spend more money on them in the form of social services--at the cost of their dignity and freedom (On food stamps? You have to use them at stores that accept them, and not all do).

The more the majority of people have to spend, the more fluid the economy is.
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Here's the problem with "trickle up" a.k.a. demand side economics that "trickle down" economics addresses: People have no incentive to keep the money in the country. Those that buy things (which is what will create jobs and help the economy) have no reason not to buy the cheaper foreign made product. This means the only jobs that get created are in other countries.

Proper trickle down economics where the money goes to investors for the purpose of investing means more companies start here and grow and hire people which means more goods and services being produced which brings money into the country.

The secret to economics that politicians either don't get or don't want to share is that our buying things doesn't help the economy at all. We have to sell things to make the economy better.

Giving money to consumers to achieve this end is the most inefficient way possible. We need to spend money on 2 things: 1 bring back the buy American campaigns the more American goods we buy the less we give away and weaken our economy, and 2 spend money on our businesses to help goods and services made here be competitive and desirable to people in other countries as that is what strengthens the dollar.
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It depends what problem you're trying to solve. It probably doesn't solve the problem of bank stability for this reason:

You give me a $1000, and I put it in the bank. Lots of other people do likewise.

Then there's a bank scare, and all the folks like me run to the bank to withdraw our money.

The bank is no better able to meet our demands than it was before, because though it now has more assets (the money we deposited) it also has more liabilities (the money it owes to all of us).

On a larger scale, banks don't trust each other any more than they did before, for the same reason that they aren't really any stronger than before.

Hence the talk about "recapitalisation" of banks. That means pumping in stockholders money (or in this case the governments money) as extra capital, i.e. money that the bank itself has, rather than its depositors money. The capital is the buffer against people suddenly wanting their money back, which the bank doesn't have on tap because it lent it out to other people.

Likewise in terms of stimulating the economy, handing out cash to everyone, whether in tax cuts or whatever is a bit like spraying water all over a burning house, rather than spraying most of it on the actual fire. Takes a lot more water or money to produce the same result.

For example, when people are scared about losing their jobs, scared how bad things might get, they are not going to be going out and buying a new house or a new car because you gave them a thousand bucks. They might go out to dinner, or buy a new iPod maybe, and save the rest.

That's not going to help the folks that are really hurting, like the auto industry and construction workers. But if the government instead spends the same amount of money on refurbishing schools, improving bridges etc, that will keep the construction industry going, help create useful assets for the country, and also help everyone else's confidence, because unemployment isn't going through the roof.

In the best case, you'd aim to be spending now on things that are going to be needed in the future anyway. So the schools and bridges get built now, rather than in five years time, and over the long run government spending can be kept about the same, it's just done sooner rather than later.

So on the whole, I think Obama has a better plan than Jon Stewart.

Maybe not surprising it turns out that way. :)

Source(s):
Reading and watching stuff about economics and the financial crisis


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