2008 Stimulus Package Led To Over 20,000 Drug-Related Hospital Visits In California

Daniel Drew, 6/3/2015

With the economy on the brink, Congress passed the Economic Stimulus Act of 2008. Part of that legislation meant that workers making less than $75,000 would receive a $300 check. After the law was passed, Paul Krugman criticized it in The New York Times, saying it was not helpful enough for "those most in need." It turned out that "those most in need" took their $300 and spent it on alcohol and drugs, resulting in over 20,000 drug-related hospital visits in California.

If Krugman had his way, "those most in need" would receive even more money. He said,

Money delivered to people who aren't in good financial shape - who are short on cash and living check to check - does double duty: it alleviates hardship and also pumps up consumer spending.

If you get high on drugs, is hardship alleviated as long as you don't end up in the hospital? Krugman wasn't clear about any official hardship alleviation methods. Tal Gross and Jeremy Tobacman conducted this particular study, which they called "Dangerous Liquidity and the Demand for Health Care: Evidence from the 2008 Stimulus Payments." They wrote,

"The payments caused a large percentage increase in alcohol and drug-related hospital visits, but did not change the risk of an avoidable hospital visit or visits associated with chronic conditions."

Their study had a 23-week observation period. If the study persisted throughout the year, the annualized stimulus-related hospital visits would have soared to over 50,000. Clearly, some people had their own ideas about what kind of "stimulus" this package would bring.

While this was an unfortunate event, does this mean that all stimulus policies are doomed to the dustbin of debauchery? Would the same thing happen if it were a $10,000 stimulus check? It's pretty easy to set aside $300 as a one-off subsidy for this weekend's party, but would people act the same with a more substantial amount of money? I think they might be more responsible. But the last time I tried to be optimistic about fiscal responsibility, I saw a $500 million mansion for sale.

So everyone gets a stimulus: The poor get their $300, and the rich get their billions, courtesy of quantitative easing. And in the end, everyone blows it.