To Stimulate or Not

Stimulating Proposals unlikely to have much effect


TALK of a slowing economy is causing talk of a stimulus package in Washington. Congress and the White House are venting proposals to spend $100 billion or more in response to growing concern we’re headed for a recession.

Our hearts are warmed by Washington’s compassion. But facts caution against getting too excited over anything the federal government might do.

There’s the issue of size — of the U.S. economy. The total value of all goods and services produced last year probably will top $14 trillion. While $100 billion is a lot of money, compared with the overall economy it’s small. Any expectation that a $100 billion stimulus package will turn the economy is like saying a nuclear aircraft carrier can be turned by a solitary tugboat.

Government can and should foster a better economic environment. The Federal Reserve has been cutting interest rates and has indicated it will keep trimming them to help the troubled real estate and lending markets.

Tax cuts also help. Congress should make the Bush tax cuts permanent, sparing individual Americans and U.S. businesses anxiety over whether reductions in income tax and capital gains rates and other features will expire after 2010 as currently scheduled, resulting in the greatest tax increase in U.S. history. The mere mention of the possibility chills spending and investment.

Instead, the White House and Congress are looking at one-time tax rebates for middle- and lower-income brackets — not exactly the folks who’re generating the capital and jobs integral to sustainable growth.

Thankfully, no one’s talking about gimmicks like a jobs program. At least not yet. Democrats would extend unemployment benefits, home-heating subsidies and food stamps. While those may provide some localized relief, in general Washington’s horizon is too near and small, and the remedies it’s likely to craft won’t have much effect on the aircraft carrier.

Reprinted from The Oklahoman