JUDGMENT CALLS
Robert J. Samuelson
Lollipop Economics 101
An 'economic stimulus' package would be less about altering the unemployment rate and more about influencing voters' views of vying politicians.
You have no doubt heard the well-worn dictum of Karl Von Clausewitz, the great Prussian military strategist, that war is the extension of politics by other means. Well, the same is true of economic policy. As often as not, it's politics by other means—and the looming debate over whether the country needs an "economic stimulus" program will, if nothing else, reaffirm that. The debate promises to be more about politics and public relations than economics. "Economic stimulus" is shorthand for tax cuts and/or increases in government spending designed to accelerate economic growth and job creation. We need that now, say advocates, because the economy is on the verge of a recession or already in one. House Democrats are reportedly discussing a package of $100 billion or more in temporary tax rebates and grants to states. Not to be outdone, the Bush administration is studying tax rebates and business investment incentives.
Call this Lollipop Economics. It's an election year. Voters feel anxious about a weakening economy. Send them economic lollipops (say, a $500 tax rebate for most families). Make them feel better. Show them you're concerned. Prove that you're trying to improve the economy. Above all, make sure they know where the lollipops came from—Democrats or Republicans. Inevitably, presidential candidates offer proposals.
Superficially, the case for "stimulus" seems plausible. In December, the unemployment rate rose from 4.7 percent to 5 percent, a huge one-month increase. Jobs are not now keeping pace with the growth of the labor force. The December increase in payroll employment was a meager 18,000, and all that stemmed from government jobs. The economy needs a shove. Lawrence Summers, Treasury secretary in the Clinton administration, has proposed a $50 billion to $75 billion stimulus to be enacted in the next few months.
Every day, the housing situation seems to worsen. Last week Countrywide Financial—the nation's largest mortgage lender—reported that new foreclosures were higher than expected. Jared Bernstein of the Economic Policy Institute, a liberal think tank, likens a stimulus package to insurance. "The important part," he says, "is to prevent a bad situation from getting worse." Bernstein worries that Federal Reserve policy alone—cuts in short-term interest rates—won't suffice to spur the economy.
All this sounds sensible, but it ignores a confounding dilemma. Folks, we have a $14 trillion economy. A one-time stimulus (rebates aren't permanent tax cuts, and grants to states would probably be temporary) of $75 billion or $100 billion is too small to do much. If the economy is in serious trouble, something much larger is needed. But if the outlook is not so dire, then a modest stimulus plan is mostly political symbolism.
The truth is that there's a touch of hysteria to much current economic commentary that is, as yet, unjustified by what's actually happened to the economy. Yes, the housing slump is vicious, but at its peak, housing was only 5.5 percent of the economy, and the present slump is still only the fourth worst since World War II, notes economist Edward Leamer, director of the UCLA Anderson Forecast.
- 1
- 2
- Next Page »
Loading Menu
Member Comments
Posted By: sayitnow @ 01/24/2008 4:20:50 PM
Comment: Lets take a look at the stocks, bonds, options, that our senators and reps own.
Why is oil conglomerations not paying tax on billions of dollars? How much stock is held by our preisdent,vice president,senators and reps? higher dividends if not taxed.
The same holds true for banks and investments. why can't we negotiate drug prices?
Where was all the special committees (receive pay for being on these committees) that are supposed to oversee and intervene when
the banking and mortage companies were encourageing and pushing these ARMS with high
instrest.Who in the congress holds bank stocks ,or who receives money (donations?) from these same banks and mortage,insurance,drug,pharmaceutical,gaints? With this money rolling in what makes any one of us think they will act on our behalf. With this box of cookies they possess all of us will be lucky to receive a crumb.
Reality of our lifes for the people who are supposed to represent us has ceased to exsist.
They are used to a reciprocal relationship with their contributors. vote them out and they will become a "CONSULTANT" for one of their contributory supporters.
You cannot believe the figures published for unemployment, inflation,and most of the information that comes from your washington political sources. They want to sound good ,strong,righteous.
Why ? you ask yourself? When did things get so bad?
When you did not write,telephone,fax,or take any interest in what they OUR GOVERMENT was doing? When you did not look into who was the money behind the people who have the greastest effect on you and your loved ones life ,live or die, jobs ,schools, mediical needs,etc.
So Cheney wants his surveillance law passed (this is the same one that they took to the hospital to very sick man to sign. HE SAID NO!!!!
in six months they want to give some of your tax money back , Now do you know how much you must earn before Social security stops being deducted from your check?
What is wrong with a freeze on foreclosures'?
What is wrong with tax on the rich?
What is wrong with taxing the billions of profit dollars of oil companies.
what is wrong with the president,vice president remembering that they were present to put their hand on the bible and sworn to protect the consitutuion it was as president not king.
Why are we Americans paying for the Iraqi so called goverment,Where are the oil revenues that was supposed to take care of various costs. How many dollars would that save if we did not pay for the so called goverment as our president and company promised? Why is there no accounting for billions of dollars that no one seems to know where they went or why? Check with the gemeral accounting office GAO.gov .
There are many ways for billions of our dollars to be put into the tax system,and many ways to stop our dollars flowing out
Posted By: mastaire @ 01/18/2008 12:51:48 PM
Comment: Why doesn't Bush just shutup!
Posted By: hushus @ 01/16/2008 1:37:10 PM
Comment: What gives American economy edge is dollar's position in the world economy as the major currency which other currencies are anchored and commodities are priced. As a result, people use dollar all over the world. Not only US economy is very big but the World economy is so big that no matter how much stimulus is proposed fundamentally it won't have any significant effect on the weak dollar, trade deficit of US and unreasonable debt of US which in turn causes high oil prices inflation, high cost for money borrowing. Americans enjoyed for a long time no cost borrowing by pushing their currency for others to buy but there is so many dollars out there with no real backing of products and service. Nobody wants it anymore but still people cannot do without dollar because still there is no alternative for it. So inevitable just lingers for a long time until Americans get that they have been mislead in to very bad situation and they stop buying stuff and try to save their future which will cause a collapse of financial system worldwide.