NCPA - National Center for Policy Analysis


January 16, 2008

"Economic stimulus" is shorthand for tax cuts 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 exploring its own plan.  Inevitably, presidential candidates are offering proposals.

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.

Superficially, the case for "stimulus" seems plausible, says columnist Robert Samuelson:

  • In December, the unemployment rate rose from 4.7 percent to 5 percent, a huge one-month increase.
  • Jobs are not keeping pace with the growth of the labor force.
  • 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.

However, we have a $14 trillion economy, so 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, says Samuelson.  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.

Source: Robert J. Samuelson, "Lollipop Economics: The Limits of What Politicians Can Do," Washington Post, January 16, 2008.

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