Stimulus bill approved by Congress
Last week, Congress buckled down and approved a $168 billion stimulus package by a wide margin. With the business pages populated by a steady flow of discouraging figures over the last three months, it has become clear that the government should intercede on behalf of the economy. Because of this, Senate passed a collection of tax rebates Feb. 7 which will have checks from the IRS to citizens in the mail this spring. The bulk of the bill consisted of President Bush’s proposals, which include rebates for middle-class income earners and a tax credit of $300 per child. Congress added payments to Social Security recipients.
The bill has been lauded as a rare and wonderful example of bipartisanship in a time of bitter divisions between the Republican administration and the Democratic majority in Congress. It is not surprising that as the economy is now polling as the most important issue in the upcoming elections, this measure has won the favor of both parties. It is easy to overlook the upcoming Congressional elections in a presidential campaign that has already dragged on for 14 months, but rest assured that they will occur Nov. 4. With this maneuver, Congress hopes to overcome its historically low approval rating without doing anything to end the Iraq War, provide universal health coverage or live up to its promises about ethics reform. The stimulus package has been the beneficiary of enough media attention to further the appearance that the government is working on behalf of its constituents.
As could be expected, the bill’s merits are dubious. These tax credits will take months to reach consumers, at which point the recipients will be expected to go out and buy something nice. Increased consumption, it is hoped, will return the U.S. economy to a healthy growth pattern, if that has not already happened by late spring. The tax rebates, which are the Bush administration’s default response to any economic data, are a clumsy solution to a slowing economy. Middle-class consumers have a lower marginal propensity to consume, which is to say that fewer cents out of every dollar that passes into their hands end up back in the economy. Extending unemployment benefits and temporarily expanding food stamps, as the Senate Democrats wanted, would have given money to people with an MPC of nearly 100 percent, putting over 90 cents on every dollar into the economy tomorrow, as opposed to some smaller fraction four months from now.
Augmenting transfer payments would likely offend the sensibilities of middle-class voters. As a result, the Republicans eagerly opposed that tactic, and Democrats rapidly capitulated. The ostensible aim of this bill is to stimulate flagging output. The most effective way to do that is to give the money to people with little or no income, but Congress has judged that to be politically unpalatable. As long as the Democratic leadership can stand around a table in the Oval Office while the president signs the law, the economics are immaterial.
It’s important to remember that the goal of this law is predicated on the assumption, common enough to go unspoken in American society, that constant GDP growth. Whether or not we should do anything about global warming, whether the Constitution really means it when it says we have habeas corpus rights—these are somehow open questions. But we have to buy two or three percent more stuff every year than we did the year before. That’s a fait accompli. Everyone in Washington agrees on that, and strongly enough that they could push the stimulus bill through Congress in a matter of days. Is that the most transcendent American value? That we should never be satisfied with the stuff we bought last year?
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