The Public Policy

Not So Stimulating

One hundred and fifty billion new reasons to hate Congress.

By 1.29.08

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Ah, bipartisanship. What would Washington be without it? It's a lovely word that gives politicians the opportunity to link arms and claim that they're working for the common good of the American people -- while mainly working for their own good.

Case in point: the economic stimulus package, hailed far and wide (which, in the nation's capital is defined as "both ends of Pennsylvania Avenue") for its refreshing bipartisan spirit.

Speaker of the House Nancy Pelosi wants to make sure everyone takes note of this spirit of comity. Her fact sheet emphasizes that it's not just an economic stimulus package, but a bipartisan economic stimulus package.

According to the Washington Post's Peter Baker and Jonathan Weisman, Pelosi used the words bipartisan and bipartisanship 10 times when announcing the deal -- just to make sure she got the point across.

The Posties seem to have bought it, too. According to their article, the package spotlights the "rarity of bipartisan action."

With all the fuss over the two parties' lovey-dovey hand-holding, you'd think we'd somehow achieved peace on earth and good will toward men, or at least a four day Frenchified work week.

But no, the parties have come together to push a stimulus package that looks to be largely ineffective -- an election-year political pander, pure and simple.

PANIC OVER AN economic slowdown and swings in the stock market have convinced many that a recession is coming, and that a shot of fiscal policy testosterone is necessary.

That's certainly how President Bush sees it. "To keep our economy growing and creating jobs, Congress and the administration need to work to enact an economic growth package as soon as possible," he warned recently.

But what if he's wrong? Congressional Budget Office Director Peter Orzsag recently told Congress that while economic growth is likely to slow in 2008, "most professional economic forecasters are continuing to project very slow growth, as opposed to an outright recession."

Orzsag also noted that "legislative action aimed at providing stimulus may not be necessary." So all the "Danger, Will Robinson!" warnings may be a bit much.

Not that that's stopping anyone. Instead of level-headed analysis, the idea in Washington seems to be to capitalize on economic anxieties so that our Congress-critters can claim to have "done something" about the economy.

UNFORTUNATELY, for Congress "do something" rarely translates into "do something effective." The current plan, just passed by the House, is no exception.

The main feature of the nearly $150 billion plan is a tax-rebate to middle and lower-income Americans. Most individuals making less than $75,000 and couples making less than $150,000 will receive a $600 check, courtesy of all the good men and women in Congress, who hope you'll remember come November. Bribery, of course, is illegal in U.S. politics, but just keep in mind who paid for your new flat-screen TV.

The package is also loaded with all sorts of ineffective liberal pet programs -- expansion of implicitly government-backed mortgage lenders Freddie Mac and Fannie Mae, for one -- and Senate Democrats have indicated their desire to add more (extra funding for food stamps and unemployment benefits), none of which are likely to spur economic growth.

But it sure is making Democratic politicians happy. One unnamed Democratic leader quoted by the Washington Post praised it as "the most progressive economic package we have seen in years."

Even the rebates, touted by Bush as a way to get money back into the hands of taxpayers, are unlikely to do much good. Most economists prefer using monetary policy rather than fiscal policy to help calm economic hiccups and view long-term economic fundamentals as much more important than short-term tinkering.

Rebates, which tend to appear too late to be effective, have a long history of fizzling. A recent study by a team of Harvard economists suggests that when a tax rebate is framed as a "rebate" rather than a "bonus" -- and that's what we're calling it -- people are far less likely to spend the money.

Then there's the nitpicky moral objection. Looking at the House bill, it appears likely that some monies will go to people who don't even pay income taxes. That's not a rebate; it's welfare.

THE CURRENT PLAN is to fund the stimulus, basically, by taking out a loan which will have to be repaid with interest. Just as the sticker price on your car isn't really the price you're paying when you pay back the loan, the already astronomical $150 billion price tag is far short of the full amount.

Worse, the actions taken to smooth over short-term bumps in the economic road could be directly at odds with long-term growth. As Orzsag noted in his testimony, "higher deficits...tend to slow economic growth in the long term if they are allowed to persist."

But what's long term economic growth to a politician looking for short-term political gain? Even though there are some proposals, like the Republican Study Committee's aptly named Economic Growth Act, which take fueling economic expansion seriously, Congress seems determined to ignore them in favor of ineffective policies and short-sighted politics. But at least they can say they did it together.

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