| But first, some basics. To be effective, a good economic stimulus must have the three T's:
* The stimulus should be timely. The longer we wait and the slower the means we employ, the harder it may be to get over the hump. According to Chad Stone and Kris Cox of the Center on Budget and Policy Priorities, timely measures "stimulate new spending quickly so that businesses do not have to cut back on production or lay off workers due to weak demand."
* It should also be temporary. The idea is to give the economy a short-term boost that can be phased out when it recovers, not saddle ourselves with permanent new tax cuts or hastily conceived spending.
* Most important of all, it should be targeted to reach the people who need it most and who will spend the money in the short-term. Stone and Cox note: "Tax cuts that mainly benefit high-income individuals are poorly targeted to provide stimulus, because those individuals are more likely to save a larger share of any increase in disposable income they receive than are people of more modest means."
There is wide agreement among credible economists across the political spectrum that putting money into the hands of low- and moderate-income families is the quickest and most effective way to stimulate the economy. To put it plainly, people who don't have money and need it spend it when they get it. That's right up there with A=A.
As Federal Reserve Chairman Ben Bernanke put it in his testimony before the House Budget Committee last week, "If you're somebody who has lots of financial assets and you receive an extra dollar, you may not change your spending much because you can simply either put the dollar in your bank account or take out a dollar as you need it. ... If you're somebody who lives paycheck to paycheck, you're more likely to spend that extra dollar."
Unfortunately, the Bush-House plan leaves out some things that would do just that. The first two are temporary measures directly targeted to families hit hardest by a downturn. These include a boost in unemployment insurance for workers who lose jobs in a recession and an increase in food stamps, most of which go to families with low-wage workers.
As influential economist Mark Zandi of Moody's Economy.com put it, "Extending unemployment insurance and expanding food stamps are the most effective ways to prime the economy's pump."
The third missing piece is fiscal relief for states that experience falling revenues. This could include increases in the federal Medicaid match to help families that lose private coverage. Other relief for states experiencing falling revenues could prevent cuts in education and other important programs.
"Today, increasing federal health and education grants to the states, while politically controversial, could be a quick and effective way of slowing the cutback in jobs when tax revenues turn down," wrote Business Week chief economist Michael Mandel.
Any stimulus package that passes the Senate should include these elements.
Fortunately, Sen. Jay Rockefeller is once again taking the lead in trying to help states through the rough waters, just as he did in the recession of the early 2000s. The Senate as a whole should follow his advice.
The Bush-House plan not only leaves important things out, it also includes a host of business tax cuts that should be carefully reviewed by the Senate. Many of these could cost a great deal in revenue but do little to get the economy moving again quickly.
It's likely that some kind of action on an economic stimulus plan will happen in the next few days or weeks.
Here's hoping we get it right.
(And drop by Goat Rope anytime.) |
