NO STIMULUS GIMMICKS, PLEASE
January 18, 2008
There are five principal reasons why a politically motivated economic stimulus bill should not be enacted in the middle of the presidential primary season, say Bill Thomas, former chairman of the House Committee on Ways and Means and fellow at the American Enterprise (AEI), and Alex M. Brill, former senior adviser and chief economist on Ways and Means, and research fellow at AEI.
- From a legislative process perspective there is no way that a tax cut can be enacted in the first quarter of 2008; thus, fiscal policy action would come too late if one accepts the gloomiest economic forecast.
- Perhaps the easiest "stimulus" package Washington could enact would be to drop money from planes into the hands of voters/consumers; however, the economic evidence shows this to be an ineffective tool, as many rebates are saved, not spent.
- The Federal Reserve is better positioned, better equipped, and more willing to quickly inject significant monetary stimulus than when the 2003 when tax cuts were enacted; the federal funds rate was 1.25 percent at the time, compared to its current rate at 4.25 percent.
- Although the political calendar suggests that now is the time to launch the stimulus debate, the economic data are far from compelling; while some on Wall Street have recently issued forecasts for recession, the data to date only indicate elevated risks.
Finally, it is important to consider the potential economic consequences of failure to achieve a legislative objective. The amplified rhetoric of economic doom from leaders and hopeful leaders in Washington may become a self-fulfilling prophecy as consumers curtail their spending in response to the predictions of recession by their favorite candidates. If history is a guide, economically sound help from Washington will arrive late at best and likely not at all.
Source: Bill Thomas and Alex M. Brill, "No Stimulus Gimmicks, Please," Wall Street Journal, January 18, 2008.
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