Monday, January 28, 2008
Editorial: Panic (and politics) on Pennsylvania Avenue
The White House and congressional leaders are acting in haste by proposing a short-term, expensive solution to a long-term economic problem.
From the RoundTable blog
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Economists disagree whether the U.S. economy has slipped into a recession, is about to or will avoid it but experience slower growth than recent years. Regardless, the threat of a recession combined with rising energy and food prices, a burst housing bubble, tremendous losses by the finance industry on mortgages and a volatile stock market are more than enough to cause grave concern.
It shouldn't prompt panic or a rush by the government to intervene. Yet that is what President Bush and congressional leaders did last week in hastily crafting an "economic stimulus" package that many economists criticize because it will fail to do what leadership wishes: pump cash quickly into the economy.
The bulk of the $150 billion plan will pay out between $600 and $1,200 to most Americans (some will gain a little more or a little less) sometime this summer. Whether they will in turn spend that money on new goods rather than bank it or pay off old debt is highly debatable. Even if it is spent, with the checks not going out for a few months, the money might not come soon enough to stave off a recession.
None of this can be predicted with any great accuracy. What can, is this: The plan will increase by $110 billion the 2008 budget deficit that is already projected to be $219 billion. Think about that. Huge deficits and overspending -- by government and consumers -- have led to this troubled economy, yet the answer from both ends of Pennsylvania Avenue is to do more of the same.
Senate Democrats say they want to tweak the compromise, but most likely it will receive overwhelming approval in both houses.
Why? A cynic might find an answer in this comment by David Wyss, chief economist at Standard and Poor: "We're seeing bipartisanship on this because what member of Congress in his or her right mind is going to vote against sending constituents each a $600 check?" And in an election year.
While this plan is politically expedient, it is doubtful that it will prove economically wise.
Still, it could have been worse. House Speaker Nancy Pelosi was able to get President Bush to drop his insistence that it include extending the 2001 and 2003 tax cuts. And Bush agreed to cap income guidelines to prevent cash going to the wealthiest Americans, who are least likely to need a government incentive to spend, and to send modest checks to the lower-wage workers whom Bush initially ignored.
Then again, the package could have been better. Pelosi caved on extending unemployment benefits and increasing food stamps. Both would have put cash immediately into the hands of Americans most likely to spend it and hit hardest by a sluggish economy. Which is truly a shame if that indeed is the point of this terribly expensive exercise.
