The New York Times-20080127-Beyond the Stimulus Package- -Editorial-
Return to: The_New_York_Times-20080127
Beyond the Stimulus Package; [Editorial]
Full Text (544 words)All the talk in Washington in the last few days about the $150 billion economic stimulus plan agreed to by the White House and the House obscures a vitally important and very worrisome fact.
The current slowdown is layered on top of deep-rooted economic problems that are not addressed by a stimulus package. If the nation's leaders do not start showing the political will to do more than dole out popular tax breaks during an election year, short-term fixes could actually make the long-term problems worse.
In the plan agreed to Thursday, the administration's worst ideas, including a push to deny tax rebates to lower-income Americans, were ditched. Money will reach many of the cash-strapped people most likely to spend it.
Unfortunately, bolstered spending for unemployment benefits and food stamps was also omitted from the plan, in favor of granting businesses outsized tax writeoffs for new investments. That is a blunder because direct relief spending is a more powerful stimulus than business tax breaks, and is better aimed at the neediest. Worse, short-shrifting the jobless and the poor now virtually guarantees that if the economy continues to deteriorate, policy makers will be forced to provide more relief later, driving up the total cost of the stimulus.
Therein lies the bigger problem. Coming to the rescue -- whether handing out money or extending jobless benefits -- is the easiest thing for any politician to do. The real art and skill of fiscal stimulus is to boost the economy as much as possible in the near term without weakening its long-term prospects.
A package that creates the potential need for continued relief down the line sets the stage for long-term budget problems, not for a healthy recovery.
Stimulus is necessary. But the flip side of fiscal stimulus is fiscal tightening. The economic crises of the moment are built on seven years of Bush-era tax-cut-and-spend policies, which made for worsening budget prospects even before the current slowdown.
According to the Congressional Budget Office, if the nation keeps on the path it is on, federal debt will exceed the size of the economy in the lifetimes of many people reading this editorial, and certainly within their children's lifetimes. Approaching a debt load that large would slam the brakes on economic activity, making today's slowdown look benign. How lawmakers -- and candidates -- act and communicate now will send a signal of their ability to see us not only through the current turmoil but to a more stable future. So far, the signals are about how much they want to dole out.
To be effective leaders, politicians also need to explain that stimulus -- which promotes spending -- is the opposite of what is needed long term. Going forward, the nation must increase savings, not consumption. That will be painful.
Higher private savings requires delayed gratification by individuals. Higher government savings requires higher taxes or reduced government benefits, or a combination of both. Yet, savings, which have been neglected as a policy imperative throughout the Bush years, are the only means of ultimately digging out of the hole the nation is in already, even before the extent of the slowdown is known.
Our immediate problem -- how to best use stimulus to buoy spending -- is the easy part.
