http://racerealty.com/

Outside editorial: Stimulus is a lousy way to increase consumer spending

Posted: Friday, August 01, 2008

If you put a dubious baldness remedy on your scalp and find that you get no new hair, you may conclude that you wasted your money. Or, if you're an incurable optimist, you may conclude that you didn't spend enough and buy another batch of the stuff.

Last winter, our leaders in Washington agreed to lay out $168 billion in an effort to stimulate the economy, mostly through tax rebates. But though most of the checks have gone out, growth has remained weak. So Democrats in Congress have reached the conclusion that since the remedy failed, they must not have used enough of it. Barack Obama has also endorsed that approach - a rerun of the fiscal stimulus.

Of course, there is another way to interpret the events of the last few months - namely, that fiscal stimulus is a lousy way to increase consumer spending, as it was supposed to do. The money spent to provide rebates has to be borrowed. The news on Monday that the White House projects the 2009 deficit will hit a record $482 billion should put all talk of "stimulus" borrowing on hold.

It's not clear that borrowing money from Peter to give to Paul affects the total amount of money spent in a given period. While Paul may spend more, Peter may offset him by spending less.

In this instance, Paul may not actually have spent more. One estimate is that only 10 percent of the stimulus cash has gone for new consumption. If the past is any guide, a large chunk of the money was destined to end up in savings or to pay existing debts, neither of which boosts new spending.

One excuse for handing out more rebates is that the last ones all went to pay unexpectedly high fuel costs. But if that's the case, and pump prices remain high, a second batch of checks will likewise vanish into our gas tanks - providing needed stimulus in Saudi Arabia.

More rebates are not the only idea floating around. Another is to pour money into infrastructure, such as building roads and repairing bridges. This option would be popular with businesses and unions involved in such projects, but there is no reason to think it would keep the economy from teetering into recession this year.

Infrastructure projects take months or years to get under way, by which time the current slump will be a memory. That is so obvious that it's fair to wonder if Congress is really intent on averting a recession.

If it were, you would expect Democrats to be pressing for immediate action against an immediate threat. In fact, any legislation is not expected to reach the floor for nearly two months. Hello? If your house is on fire, you don't make a note to call 911 tomorrow.

Putting off action till September looks like weird timing from the point of view of economics. But economics doesn't always dominate such decision-making. The timing makes perfect sense as a matter of politics - if Democrats are more intent on embarrassing the White House than on reinvigorating the productive sector.

As a matter of economics, though, it's actually better for Congress to wait before passing a fiscal stimulus package. Never would be soon enough.



CONTACT US

  • Switchboard: 907-586-3740
  • Circulation and Delivery: 907-523-2295
  • Newsroom Fax: 907-586-3028
  • Business Fax: 907-586-9097
  • Accounts Receivable: 907-523-2270
  • View the Staff Directory
  • or Send feedback

ADVERTISING

SUBSCRIBER SERVICES

SOCIAL NETWORKING