Matthew D. Shapiro and Joel Slemrod of the University of Michigan know what they're talking about. They wrote what many consider to be THE paper on the 2001 stimulus payment and now, according to the Wall Street Journal Real Time Economics Blog, have taken a look at the preliminary data on the 2008 stimulus payments. Where did the money go? It's not too surprising:

The change in the personal saving rate corresponds closely to the size of the rebate as a percentage of disposable income. The figure shows how most of the rebate payments appear to have gone straight into saving.

Which is clearly not what President Bush had in mind when he drew up the checks in the first place.

That most of the rebate checks were saved is, though, consistent with the results we find using the University of Michigan Survey of Consumers. When consumers were asked whether their stimulus check would lead them to "mostly spend, mostly save, or mostly pay down debt," only 18% answered that it would lead them to mostly spend more.

That statement is also pretty much in line with what has been reported in the past couple of months. Still, many have been hearing reports recently that feature consumers talking about how they are spending their rebate checks, making some question whether or not it had more of an effect than originally thought. Shapiro and Slemrod don't buy this argument all the way:

Does such consumer behavior correspond to spending that would stimulate the economy? That depends on what the consumers would have done if they had not received the rebate check. If they would have not made those purchases absent the rebate, then the rebate was spent. If the rebate let them avoid running up higher credit card bills for gas and groceries they would have purchased even without the rebate, then the rebate was saved.

Thus the rosy predictions of Americans flocking to stores to spend their rebate checks may not necessarily indicate that they are having the desired effect of stimulating the economy. And what is their overall analysis of how this first stimulus package worked out?

Nonetheless, the rebates are likely to be less effective in stimulating the economy than policymakers had hoped.

In reality Shapiro and Slemrod only add another reliable source to the masses who have highlighted the failure of the first stimulus package to boost the economy. They also join another group that has been picking up steam lately; those who think investing in the states should be a central tenant of any new stimulus package:

If a second round of stimulus is necessary, other options that should be on the table. These include payments to states that will need to cut spending because of balanced budget provisions as their tax revenue falls. Additionally, policymakers should consider increased infrastructure investment on items such as roads and bridges.

Both of these are great ideas. Though they ask the question, is a second round of stimulus necessary? All I can say is look around.

In California the state budget impasse is rounding the track on its 6th week (they were supposed to have something figured out by July 1st.) Governor Schwarzenegger has been favoring scare tactics over real negotiation with state Democrats. Ask the 200,000 state employees who had their salaries reduced to minimum wage if they think a second round of stimulus is necessary. Ask the 10,000 plus seasonal and student workers who lost their jobs if they think a second round of stimulus is necessary.

In New York, Governor Patterson is calling the state legislator back into session to address a projected $6 billion budget gap next year and a gap that could ballon to $26 billion in three years. They say everything is on the table for cuts. I'm sure they could use a little help.

These are just two of countless examples of states in need of some aid. Here's to hoping that when Congress comes back into session next month they do so with the recommendations of Mr. Shapiro and Mr. Slemrod in mind.