But Wait…There's More! (Stimulus that is..)

We’ve all seen the informercials. America will buy just about anything for $19.99. And just when you think you are being offered the greatest thing ever, comes the famous line, “But wait, there’s more!” If you order in the next 20 minutes we’ll double your order, or offer free shipping, or throw in a free Ginsu knife.

Most Americans and President Obama believe America needs more. More “stimulus” to stop or slow the hemorrhaging of our economy and the millions of jobs already lost, through some form of massive government spending and tax cuts. To the tune of, swallow hard future great-grandparents of those paying off this debt, after interest payments over $1 trillion. This in addition to the $700 billion bank and auto industry bailout seen by most as difficult but necessary to avoid a literal potential meltdown of our entire economy with the shutdown of lending and the risk of eliminating over one million jobs just related to the auto industry. And the hope is that a good chunk of that bank and auto money will come back at some point as most of it was invested in or loaned to financial institutions and car makers, most of whom will survive and maybe even thrive in the years ahead.

President Bush tried a stimulus plan in early 2008, sending most Americans a check. Frankly, it basically did nothing. Most every economist agrees that by far the most powerful tools to address a recession are in the hands of the Federal Reserve and monetary policy. Fiscal policy controlled by the government can have only limited benefit if any, though some recent Presidents found that spending and tax cuts together can sometimes have a stimulative effect. Unfortunately, other than literal printing of money, the Federal Reserve is pretty much out of tricks. With interest rates at near zero, there’s not much left to do.

So we are back to fiscal policy riding in to save the day. The current Congressional debate seems to be mostly over not the size of the stimulus but the tools and timing to get there. Democrats feel spending is key. In fact Pres. Obama said yesterday something to the effect of, “The Republicans are complaining that the stimulus package is just a spending package. Well what else could a stimulus package be?” The answer, say the Republicans: tax cuts. Giving people back their own money to spend.

But wait, that’s what Bush did. It didn’t really work. Although cutting things like capital gains tax to spur investment can have a real impact, studies show. But in any event, it appears the combo is the key. Ultimately, it seems most everyone will be happy if there were strong tax cuts combined with targeted spending with very near-term results. Republicans are complaining about spending in the package that is 2-3-4 years out, when hopefully the economy will be doing better. Say the Democrats: the economy will still need help then. Republican response (from Sen. McCain): Let’s say that any part of the spending that comes in out years after the economy has recovered will be shelved. Not too likely that is going to happen.  Is this just the biggest pork barrel bill ever with every item on every Democrats’ wish list denied for the last 8 years being thrown into one giant bill? Or a real package designed to bring our economy back? Don’t know.

It looks today like there is a “compromise” (ie all Democrats and 3 Republicans in the Senate agree, enough to stop debate) of roughly $800 billion in spending vs. almost $1 trillion originally proposed. But with interest it is still over a trillion bucks. It is very, very scary and it is happening very fast. I’d love every member of Congress to sign an affidavit that they actually read this biggest bill ever before being allowed to vote for it (good luck there). Someone on the news this morning said from the beginning of our republic until the Carter administration the total spending in the aggregate through that time was $800 billion. We are now set to spend that same amount all at once.

I am neither an economist, nor do I play one on TV. I nearly failed microeconomics at Wharton (don’t tell my Mom). I will continue to work hard not to make this a political blog or take political sides. It is sad though, that for whatever reason, partisan wrangling waited no more than 38 days from Obama’s inclusive inauguration speech to return. It’s the Democrats’ turn to power. I hope they know what they’re doing, for everyone’s sake. It seems the Republicans are going to pin it all on them if this doesn’t work. But of course the Democrats will say it was not their stimulus package that failed but the failed policies of the Bush administration. And so it goes. To paraphrase the great Cindy Adams, “Only in Washington, kids, only in Washington.”

PS I will be in our nation’s capital this week for various meetings. Looking forward to feeling the pulse down there.

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