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The key to dampening out the effects of an economic slump is to get money into the hands of people who will spend it fast, preferably at a point on the economic food chain where the money will stay in the economy for as long as possible. Money that is shipped overseas will do little to stimulate the US economy.
That is why traditional economics advocates aiming the stimulus at the poorest segment of the economy, knowing that they will spend it quickly on household necessities--like food and shelter--instead of investing it in some Third World enterprise.
Conservatives, "supply side" cultist, "Voodoo economics" witchdoctors, and other people who simply do not understand economics, clutch desperately to the myth that money given to the rich stimulates the economy because these people will "invest it."
This is true enough but unfortunately there is no guarantee as to whose economy it will stimulate or where they will invest the money and this makes all the difference. US dollars invested in a factory in China or a phone bank in India is of very little use to the sinking US economy. On the other hand the poor can be relied on to spend the money where it will do the most good, inside the American economy.
Although the most bone headed of the administration's ideas, denying tax rebates to lower-income Americans, was trash canned, the current $150 Billion stimulus package still misses the target because it stresses huge tax breaks to businesses who write off new investments. This is in the place of increased spending for unemployment benefits and food stamps, the key to any successful economic stimulus.This is dumb on so many levels.
First, as we have already noted there is no guarantee as to which country those investments will be made in.
Second, assuming that the investment is made in this country, such write-offs take time to kick in and time is not something the U.S. economy can afford at the moment. Rather like a sky diver too close to the ground the time to pull the rip cord is now.
Third, by ignoring the jobless and the working poor now this package virtually guarantees that if the economy continues to slide down hill lawmakers will be forced to provide the relief further down the road that they should have provided now. And the signs are that the downturn will still be going strong as the election nears. According to
Bernard Baumohl, managing director of the Economic Outlook Group
Practically speaking, this plan is not expected to have any meaningful impact on the economy until much later this year, perhaps in the fourth quarter. Even then, it's unlikely we'll see more than an extra blip in GDP growth.
So we already have reason to believe that the economy will still be in a slump as we near the election. As that day approaches the pressure to do something for the poor will grow more powerful. The election almost guarantees that no politician, other than those bent on political suicide, will dare vote against such relief as the election drawn near.
So we will be spending more money on top of the $150 billion we are currently dishing out. This spending, on top of the current stimulus package, will simply drive up the deficit, weaken America's economic credit rating, and prove to be too little too late.
The
Congressional Budget Office believes that if the US stays the course that Bush has laid down the federal debt will grow larger that the economy
within a few decades. Such a state of affairs would almost certainly sink the US economy.
Recent polls have found that two thirds of Americans feel that the US is headed for a recession, if we are not already there. They also feel that Democrats, not Republicans, are the best qualified to get this country out of the hole that seven years of Bush rule coupled with four years of a Republican Congress, has put us in.
