Fiscal Stimulus, the Sequel
Well, the fiscal stimulus train is leaving the tracks yet again. Bernanke's support during his testimony on the Hill this morning virtually guarantees it's going to happen. Let's hope that this time it makes it to the correct destination. We can debate another time whether fiscal stimulus should even be on the table.
It is said that the definition of insanity is doing the same thing over and over and expecting different results. Isn't that what our esteemed Congress people repeatedly do by proffering legislation that wins them points with their base, but does nothing to address the root causes of the problem? The rallying cry for the last stimulus was, "targeted, timely, and temporary." No doubt they succeeded on the third element. In fact, it was so temporary that the entire impact of the $168 billion package evaporated almost immediately after it artificially propped up retail sales in the 2nd and 3rd quarters...only to leave us in much deeper turmoil. Should that have been a surprise? Of course not. Passing out $600 checks did nothing to address the much more structural and nuanced nature of our economic duress. If they pass out checks this time, the impact will be notably less material (if that's possible). Why? Because people are now even more concerned about their long-term economic well-being. As such, they are significantly less likely to pump that money back into the economy. And, the portion that they do spend will have the same ephemeral impact on GDP as the February stimulus.
Fiscal stimulus, at a time where the very fabric of our financial system is in upheaval and our current 6.1% unemployment rate is heading toward 7.1%, or 8.1%, or higher, must be focused on providing incentives to drive behavior that lead to long-term economic growth and job creation, not short-term spending that leaves nothing but a larger deficit in its wake?
Rather than hand out checks, let's provide tax incentives to businesses that add net new jobs; or substantial benefits to new home buyers; or meaningful inducements for businesses to invest in capital equipment; or consequential encouragement to various industries, such as alternative energy, that have the capacity to create hundreds of thousands or possibly millions of new jobs. Any or all of these ideas can attack the root causes of our current malaise and put in place policies that will pay dividends in the form or economic growth and job creation for years to come. That's what we need, not pandering feel-good measures that only leave us deeper in debt.
It is said that the definition of insanity is doing the same thing over and over and expecting different results. Isn't that what our esteemed Congress people repeatedly do by proffering legislation that wins them points with their base, but does nothing to address the root causes of the problem? The rallying cry for the last stimulus was, "targeted, timely, and temporary." No doubt they succeeded on the third element. In fact, it was so temporary that the entire impact of the $168 billion package evaporated almost immediately after it artificially propped up retail sales in the 2nd and 3rd quarters...only to leave us in much deeper turmoil. Should that have been a surprise? Of course not. Passing out $600 checks did nothing to address the much more structural and nuanced nature of our economic duress. If they pass out checks this time, the impact will be notably less material (if that's possible). Why? Because people are now even more concerned about their long-term economic well-being. As such, they are significantly less likely to pump that money back into the economy. And, the portion that they do spend will have the same ephemeral impact on GDP as the February stimulus.
Fiscal stimulus, at a time where the very fabric of our financial system is in upheaval and our current 6.1% unemployment rate is heading toward 7.1%, or 8.1%, or higher, must be focused on providing incentives to drive behavior that lead to long-term economic growth and job creation, not short-term spending that leaves nothing but a larger deficit in its wake?
Rather than hand out checks, let's provide tax incentives to businesses that add net new jobs; or substantial benefits to new home buyers; or meaningful inducements for businesses to invest in capital equipment; or consequential encouragement to various industries, such as alternative energy, that have the capacity to create hundreds of thousands or possibly millions of new jobs. Any or all of these ideas can attack the root causes of our current malaise and put in place policies that will pay dividends in the form or economic growth and job creation for years to come. That's what we need, not pandering feel-good measures that only leave us deeper in debt.
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