Thoughts on Stimulus

Posted by Bryant Daniels on 02.03.2009

Self-conscious about the size of your package?

Great stuff on Charlie Rose today regarding the stimulus package, with discussion featuring Chuck Schumer, Jack Welch, Martin Feldstein and David Leonhardt. Feldstein and Welch, a conservative economist and businessman respectively, both felt the stimulus needed improvement while Schumer and Leonhardt praised the action being taken as a good firm step toward recovery. Both sides presented logical arguments that are worth considering on a grander scale. In terms of infrastructure spending the plan offers a unique chance for us to do two important things: create real jobs in a relatively short amount of time and improve long-term economic capabilities by "updating" our crumbling skeletal structure. If we are to spend billions of dollars we need to maximize the bang for our buck. Inside the stimulus bill the senate will debate will probably be a mandate that all infrastructure projects the package pays for be ready to go within 120 days of fund allocation, a great way to ensure the money doesn't sit idly by while more and more people lose their jobs. Republicans have raised legitimate concerns about unnecessary money being spent on social projects, but ultimately thats small ball compared to the bigger picture. Even though Nancy Pelosi couldn't come up with a good answer for why the bill should include funding for contraception doesn't mean we should scrap the whole plan, and it certainly doesn't mean we should curb the funding for other social programs like food stamps and health care.

I give the Obama team credit for trying as hard as they have to do this in a bipartisan way, and if done properly a conservative approach (namely tax cuts) could help the credit market in both the long and short term. Feldman suggested tax breaks be given in a way that promotes consumer spending, rather than saving the money or using it to pay off the debt. For instance say the government offers in the stimulus tax breaks for purchasing cars, saying to the consumer if you buy a new car within the calendar year, the government will pay for 20 percent of it (For those of you ACHING to cry socialism, remember Feldman is a fiscal conservative). That's a tax credit that breathes life into a hurting market (the auto industry) while boosting consumer confidence. We have to remember, the key word here is "stimulus." Tax breaks for the sake of tax breaks probably won't lead to consumer spending, as we've seen with previous stimulus packages. Similarly a tax break could be offered for the housing market, but it probably would be minimally effective as housing prices continue to drop. Who wants to buy a house now, receive an uninspiring 7,500 dollar tax credit only to watch the house you just bought drop in worth another 20,000 dollars?

Of course these provisions regarding taxes and infrastructure spending don't really solve the main problem, that being the freeze on the credit market. What to do with all the toxic debt is a difficult decision, one I'm happy not to have to deal with. I think some of the money should be used to directly help the homeowners and keep foreclosure rates from continuing their rise. If we do establish a "Bad Bank" We must be careful not to overpay with the tax payer money, a difficult proposition considering the market has yet to hit rock bottom. The light at the end of the tunnel may be when we alleviate the banks of all the horrible debt they've accumulated, freeing the credit market to once again take some risks. it's not a job the tax payers should be doing, and certainly not one they should ever do again, but in the meantime lets make sure the economy doesn't crater any further. We can debate the merits of reform soon after.