The Fiction of Stimulus
EJ Dionne continues to mindlessly chant his mantra of bipartisanship in his op-ed
in today's Post. I'd be more convinced of that argument if he could point to a concrete example of the Democrats actually giving in to the Republicans on something, but I won't hold my breath waiting.
In any case, the more important issue Dionne addresses is the question of the 'stimulus' package, or packages, being debated by the Senate to help the US out of our recession. The Democrats want to tilt the stimulus to provide better unemployment benefits and payments to lower income people, while the President prefers accelerating the tax cuts passed as his first major initiative back in the Spring. Personally, I think the most likely real stimulus would be a bill that provided incentives to spend now, which would mean tax breaks for businesses that would expire in six months, as an example. The Democrats and Republicans are both just trying to hide their business as usual in bills marked 'stimulus,' not unlike what was crammed into the cleverly titled USA Patriot Act a few weeks ago. I don't really mind that, however, because I'd argue the government can't stimulate the economy out of a recession anyhow.
Let's look at the past decade. What fueled the massive economic growth, especially in the last year or so, was consumer spending. That's a basic economic fact: if people don't buy stuff, the economy doesn't grow. Most of the tax rebates touted by both the Bush administration and Democrats from last summer went directly into people's savings, rather than triggering renewed spending (although I did my part, spending mine immediately). The reason for that? People were concerned about the future, and so chose to save the money rather than spend it. Conversely, during much of the 1990s, people saw the pie growing endlessly, and so were willing to go deeper and deeper into debt to buy things. Above all, it's a mindset that drives the economy as much as reality, and the mindset now is recession. The only way we're going to come out of the recession is when people change their minds, which generally does not occur for some time after a recession is actually over. Look at President Bush in 1992: the economy was already growing throughout the election year, but the mindset hadn't changed yet, allowing Clinton to sweep into power with his "It's the economy, stupid," slogan.
It may be argued, however, that the government passing a stimulus package might help consumers' mindset. That's possible, I suppose, but I don't see it as being likely. Government spending is not sufficient to drive the economy out of recession, and consumers, as a group, are unlikely to change their mindset until there are concrete signs the recession is over. So any government 'stimulus' is likely to do little to actually help the economy, either in reality, or in perception. Now, if the government wants to accelerate the tax cuts and call it stimulus, I'm all in favor of that just to keep some more money out of the hands of the federal government, but any other stimulus bill deserves to be shot down, as it will only line the pockets of a particular interest group.