To Stimulate or Not to Stimulate?

I am continually amazed at the way the federal government, the press, and the American public react to economic issues in this country. The entire cycle perpetuates itself. The press paints drastic pictures, designed to scare the public and keep the tuned in to the news networks. As the people get more worried, the polls show that they want action, which spurs Congress into action. But rather than put serious through into a measured response, lawmakers throw together over $800 billion dollars in unnecessary spending, just so they can be seen on TV as trying to solve the problem. The constant debating and bickering in Congress gives the media more to discuss, and more opportunity to spin the truth in a way that keeps the public scared...and the cycle continues.

It should come as no surprise that am firmly in the camp that believes the government does not NEED to do anything to pull the economy out of a recession. The market moves in cycles, and will eventually correct itself. Impatience and panic won't allow the more reasonable minds to prevail, and so Congress is working furiously to pass an "economic stimulus" package, aimed at helping speed up the recovery time. Despite the fact that the Congressional Budget Office (CBO) published a report that shows that most of the discretionary spending offered in Congress will not have the desired effect until 2011 (when many economists believe the recession would end naturally anyway), Congress is pushing on with a bill of a base cost of $838 billion (according to CBO estimates). Once you factor in estimated interest costs, the package comes in at over $1 trillion, despite the fact that the U.S. has debts totaling over $11 trillion.

If Congress absolutely has to get involved, they should limit themselves to creating tax incentives for businesses and individuals, the only proven way to truly stimulate the economy. Less taxes means more money in the market, which can lead to greater revenue, more jobs, and higher salaries and benefits. Now, both the House and Senate proposals include a number of tax incentives, but they are buried under billions in discretionary spending. This does not even include the billions that will go out through the annual appropriations process when Congress finishes work on fiscal year 2009 (FY09) spending. Much of this spending may not have the desired effect, which President Obama admitted in a public address yesterday, but it will continue to drag the country farther down into debt.

During their time spent in the minority, the Democratic party went on and on about how deep the President and his Republican majority was going into debt. I agreed fully with their assessment. The Republican Congress abandoned their conservative ideologies and let their spending get out of control. However, now that the Democrats have regained control of both Congress and the White House, they seem content to continue this culture of irresponsibility. As a result, we will go deeper into debt (a debt that is owned by China and other foreign powers) and the economy is not likely to recover any quicker than if it had been left to the natural forces of the market.

To give the Senate some credit, they were able to cut about $110 billion out of the proposal, cutting much of the funding that is not directly related to stimulating the economy. However, that is like ordering the triple cheeseburger, with extra grease, but taking off the mayo. It might be a little less unhealthy, but will still clog your arteries. Senators Arlen Specter (R-PA), Susan Collins (R-ME) and Olympia Snowe (R-ME) will vote with the majority, giving them the votes needed to pass this farce. They claim a victory because they pushed through the cuts. All they did was trim some of the fat, ignoring the real problems associated with the bill.

Resources:
CBO Stimulus Reports
Stan Collender Coverage