Calculating the Stimulus
THE CONSENSUS in favor of fiscal stimulus for the sluggish U.S. economy is now complete. Democratic leaders in Congress want it. Presidential candidates are talking about it. Federal Reserve Board Chairman Benjamin S. Bernanke said this week that "fiscal action" could complement the Fed's interest rate cuts. And yesterday, President Bush promised to give the economy a "shot in the arm."
All that's left is one not-so-small matter: the details. The case for a stimulus is that it will quickly increase consumer spending and business investment. That, in turn, is supposed to boost output and employment, helping to pay off the added debt later. As Mr. Bernanke emphasized, though, a stimulus could be worse than useless if recipients of government cash put it in the bank -- or if it kicks in after a recession ends.
Democrats and Republicans should now pause to read two reports. The first is Wednesday's Post story by Jonathan Weisman and Jeffrey H. Birnbaum detailing industries' frenetic lobbying for special tax breaks or subsidies in the name of fighting recession. The second is a new paper by the nonpartisan Congressional Budget Office (CBO), which explains the imponderables of consumer and business behavior that affected past stimulus plans and that could affect the next one. (Among the interesting possibilities: consumers might use stimulus dollars to buy imports, thus "exporting" the boost.) The CBO identified measures best calculated to deliver cash to those most likely to spend it, with a minimum of bureaucracy
President Bush's plan is still sketchy, but reports so far suggest it would partially meet the CBO's criteria, both because of its size (perhaps $150 billion, or 1 percent of gross domestic product) and because it delivers two-thirds of its cash directly to consumers in the form of tax rebates (reportedly ranging from $800 for individual filers to $1,600 for married couples). The rest would go to as-yet-unspecified investment incentives for business. The president has bowed to reality and postponed making his 2001 tax cuts permanent.
The problem, potentially, is that sending checks only to those who paid federal income tax leaves out people at the bottom of the economic ladder. This is a question of efficiency as well as fairness: the CBO notes that the poorest households are the likeliest to spend what they get. In that respect, Democrats are right to advocate a smaller tax rebate, limited to middle-income taxpayers, complemented by extended jobless benefits and a temporary boost in food stamps. Democratic presidential candidates also tout multibillion-dollar aid plans to stave off more housing foreclosures this year. But, as the CBO also says, the stimulative impact would be relatively modest, whatever the measures' other merits.
Now that the bidding has been opened, we are bound to hear all sorts of additional ideas. Some will be worth consideration, such as economist Martin Feldstein's proposal to trigger the stimulus package only when the economy has entered a recession. Others will not, such as former Arkansas governor Mike Huckabee's suggestion to build a fence on the U.S.-Mexico border "with American labor and American materials," as his campaign Web site puts it. Given the rancor in Washington, bipartisanship on the economy is welcome. But politicians can always agree on the need to give voters money during election years. Much more difficult will be the development and implementation of a plan that really is what economists say it must be: "timely, targeted and temporary."