FOR REAL STIMULUS

January 6, 2009

Congress is ready to ram through a half-baked stimulus package costing as much as $1 trillion. But if it's stimulus we need, why not make it effective stimulus -- tax cuts, say, instead of wasteful spending?

The massive new spending program that is being pushed by congressional Democrats emboldened by their newly enhanced majorities may come up as soon as Tuesday, when they return from their holiday breaks.

Unfortunately, they've picked the least effective way to give the economy a boost, says IBD.  Those who argue for hundreds of billions of dollars for infrastructure projects and "green jobs" have it all wrong. We've tried those remedies before and found them wanting.

  • Japan followed the same Keynesian game plan after its real estate bust of 1989.
  • To the applause of many American liberals, hundreds of trillions of yen were spent on infrastructure, raising outlays on big projects from 6.5% of GDP in 1990 to 8.3 percent % in 1996 -- even more than contemplated under Obama's plan.
  • That didn't work; the 1990s were a "lost decade" for Japan's economy, and the country is still stagnating.
  • Its infrastructure boom did have one lasting legacy, however: Japan is now the most heavily indebted nation in the Organization for Economic Cooperation and Development.

 According to research cited by former top White House economist Greg Mankiw, each $1 of tax cuts brings $3 in added GDP. This study is particularly significant because one of its authors, Christina Romer, is Obama's chief economic adviser.

Simply handing blank checks to Congress and the White House, and letting them pass an ill-considered stimulus plan with little transparency and no checks on spending is a very bad idea.

Source: "For Real Stimulus," Investor's Business Daily, January 5, 2009.

 

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