I don’t like it. Not one little bit. The Republicans call it a “spending” bill. Well duh. The government is the only entity that can inject liquidity into the economy at this time. The problem with the House bill is that it’s just a bunch of appropriations that Bush vetoed. It’s not that many of those appropriations shouldn’t be passed; it’s that many will do little to stimulate the economy. That gives political ammunition to the opposition, and boy are they taking advantage of it.
The Republicans think tax cuts are the silver bullet. Some argue for a one year moratorium on payroll taxes. The idea is that people will use this extra money to buy things and business will use this money to hire. There are three problems: 1) the amount seen by taxpayers and business isn’t enough to move the economy much, if at all, 2) payroll taxes fund Social Security and Medicare, two programs that need all the cash they can get, 3) the payroll tax is one of the most regressive taxes we have. This idea gives more money to those who need it less. They also argue for a business tax cut, so that American business’ can compete with business in other industrialized countries with lower business taxes. No argument here, but it’s not a stimulus measure. As Barney Frank said: “I never saw a tax cut build a bridge.”
No amount of spending will work unless we simultaneously solve the housing crisis and the banking problems.
Here’s what President Obama should do: gather his economic advisory team and members of the Congressional Budget Office. No politicians allowed. Have them come up with a set of recommendations that will address these issues in the short term, medium term and long term. Have them rank the recommendations in order of efficacy. Have them state the pros and cons of each of the recommendations. And have them explain, in a way a 10 year old can understand, why each recommendation should work. If a 10 year old can’t understand it, how can we expect members of congress to understand it? This will be the basis of the stimulus plan. The economic advisory team and CBO will monitor it closely and tweak things as needed.
Problem solved. You’re welcome.
dnd – the armchair economist.