Good politics, bad economics

All right-handed economists believe that a stimulus package consisting of tax rebates ultimately prove to be ineffective. Writing in the USAToday last week, Cato Institute chairman William Niskanen, a former Reagan budget official, epitomized the conservative, hands-off view.

Fiscal policy should not be used in the futile attempt to stabilize the economy. The Federal Reserve’s monetary policy is far more effective at this task, and the large recent reduction in the fed funds rate illustrates that it can respond more quickly and more forcefully than any change in fiscal policy.

In general, government policy should be judged by its effects on the incentives to work, save, invest, and increase productivity and output. This fiscal stimulus package would do almost none of the above.

Politicians, in election years especially, feel compelled to be seen as doing something in response to the general concerns of their favored constituencies. Mr. Bush’s and Ms. Pelosi’s fleeting moment of bipartisan agreement might look good on TV, but it’s still an economic mistake.

There’s another view, from the left, that believes that a targeted stimulus geared for unemployed workers would be effective. Marie Cocco in the Washington Post makes a strong case for this argument.

With the Bush-Pelosi bill is about to cut checks for June delivery, a good question to ask is how will this affect Republican chances to retake the House. Assume that the stimulus is about politics, do Republicans get any credit in November? Or will this be played up as a Democratic victory? Is this the kind of bipartisanship that mainstream voters want?

 

About Karl Marx

Left wing libertarian conservative.