Thread: Clinton to Unveil $70 Billion Economic Boost

Opinion : Stimulus: Short-term thinking still reigns
Fri Feb 1, 12:14 AM ET

Does a stimulus package really stimulate? In 2001, the last time the government proposed to send taxpayers checks to jump-start the economy, people asked whether it made sense to offer business tax breaks and put a few hundred dollars into middle-class hands. More symbolism than stimulus, it was not clear that the dollars offered would help those truly in need.


Here we go again.


Now, the House and President Bush put forth a plan to send $600 to $1,200 to 117 million families. This compromise, though hailed as a bipartisan winner, failed to provide food-stamp extensions — an add-on that would help those most in need. This provision could find new life in a Senate-House compromise.


And, while the unemployment rate has jumped to 5%, with 7.7 million Americans jobless, the House stimulus package negotiations left an extension of unemployment benefits on the table. Fortunately, the Senate bill includes such a provision, though whether it will survive is questionable.


Why were the unemployed left out of the initial deal? At least partly because the $146 billion package offers $50 billion to business owners with the aim of greasing the skids for capital purchases.


Will any stimulus package help us avert a recession? Economists at the Center for Economic and Policy Research say it is a "healthy, but limited, start towards counteracting the effect of the housing downturn on the economy." They are among those who favor focusing on workers and on the weakness in the labor market that has heretofore been unaddressed.


It's funny how lawmakers rally to action far more quickly when the stock market dives than when the unemployment rate rises. Even with maximum congressional cooperation, though, checks won't reach American homes until May at the earliest.


If we are heading into a recession, the little bump we'll get from people pumping their $600 into the economy is likely to be minor. That's a short-term effect. Why not think long range and pump the $146 billion into education, employment programs, infrastructure and community development? Such investment can create fundamental and long-lasting changes in communities. Instead of a few hundred dollars in our pockets, we'd provide a jolt with no expiration date.


But is it really all that surprising to see a Democratic Congress and a Republican president unite on this issue? After all, sending checks to voters in an election year is a no-brainer. It's also the kind of short-term thinking that exacerbates our long-term problems.

Julianne Malveaux, an economist, is president of Bennett College for Women.

http://news.yahoo.com/s/usatoday/200...k4Cx4M02_8B2YD

The 'Stimulus' Markets
February 6, 2008

President Bush and Congress are marching arm in arm to pass their economic "stimulus," but it's clear that at least one group of observers isn't impressed: investors. They blew right through all the Beltway happy talk yesterday, selling off the major stock indexes by some 3% or so on an ugly day.

Investors were more impressed, or we should say depressed, by the plunge in the Institute for Supply Management's services index for January. The ISM survey took a header to 41.9, down from 54.4 for December, which suggests a decline in the service economy for the first time in nearly five years. Any reading below 50 indicates contraction, so January's reading is another talking point for those who think the economy is heading toward recession.

Heretofore, the recession evidence had been decidedly mixed. Friday's Labor Department jobs report for January was rotten with a decline of 17,000, but a private sector survey that's typically accurate found 130,000 new jobs. Durable goods were strong last week, and the ISM manufacturing survey also showed surprising strength above recession levels. But with services now such a dominant part of the U.S. economy, there's no sugar-coating yesterday's report.

Naturally, the ISM news encouraged predictions that the Federal Reserve will have to cut interest rates even more than it has in the past two weeks. The Fed's Open Market Committee next meets on March 18, but given its recent willingness to respond to Wall Street's demands, look for more voices to encourage another big "emergency" interest rate cut before then.

In case the Fed still cares, however, we'd note that yesterday's ISM report was hardly reassuring on prices. The prices paid index came in at 70.7, down only slightly from December's 71.5, which suggests considerable upward pricing pressure. In the 1970s, the word for this kind of predicament was "stagflation."

And, much like the 1970s, the political class is riding to the fiscal rescue with a "jobs program" designed mostly to preserve its own jobs. The House passed its $146 billion version of tax rebates and tax credits last week, while the Senate wants to raise the bidding to $157 billion. Republicans tried to resist this last week, but yesterday the White House signaled it will roll over again. Treasury Secretary Hank Paulson said he'll "work something out" on expanding the tax rebates to include 20 million retirees.

These one-time federal checks will give Americans a little more ready cash in time for Election Day, but they aren't impressing investors worried about recession. Yesterday's selloff came despite the White House concession to the Senate, and perhaps even because of it. The real damage from this exercise in bipartisan self-delusion is the lost opportunity for a serious tax cut that would increase incentives for capital investment and risk-taking.

Meanwhile, Senator John Sununu (R., N.H.) is being attacked by Democrats for voting against the extra Senate "stimulus" last week. As one of the strongest pro-growth voices still left in the Senate, but facing a tough re-election battle, Mr. Sununu's prospects aren't helped by yesterday's White House retreat. Mark that down as another reason investors can be forgiven for looking at Washington, and then selling stocks.

http://online.wsj.com/article/SB1202...w_and_outlooks




Why It's Not The Economy
By Robert J. Samuelson
Wednesday, February 6, 2008; Page A19

As the economy weakens and the campaign intensifies, we'll hear more of James Carville's familiar refrain: It's the economy, stupid. Well, it ain't or, at least, shouldn't be. I'm not claiming that Carville is wrong about voting. People vote their pocketbooks. In the latest Washington Post-ABC News poll, the economy overshadows Iraq as the most important issue by 39 percent to 19. What I'm saying is that this sort of voting is shortsighted. It rewards or punishes candidates for something beyond their power.

We have a $14 trillion economy. The idea that presidents can control it lies between an exaggeration and an illusion. Our presidential preferences ought to reflect judgments about candidates' character, values, competence and their views on issues where what they think counts: foreign policy; long-term economic and social policy -- how they would tax and spend; health care; immigration. Forget the business cycle.

True, presidents try to manipulate it. In 1971, President Richard Nixon imposed wage and price controls in part to prevent inflation from jeopardizing his reelection. The economy boomed in 1972. But the controls were a time-delayed disaster. When they were removed, inflation exploded to 12 percent in 1974. In 1980, the Carter administration adopted credit controls to squelch raging inflation. The result was a short recession -- a complete surprise -- that probably sealed Jimmy Carter's defeat in November.

History's long view teaches the same lesson. No president tried harder, with good reason, to influence the business cycle than Franklin Roosevelt. When he took office in 1933, unemployment was roughly 25 percent. By executive order and congressional legislation, FDR effectively abandoned the gold standard, adopted deposit insurance, tried to prop up falling farm and factory prices, rescued many defaulting homeowners, regulated the stock market, and embarked on massive public works.

With what result? Well, leaving the gold standard aided recovery. But some economic research suggests that other New Deal measures may have frustrated revival. In any case, all of them together didn't end the Great Depression. World War II did that. In 1939 unemployment was still 17 percent.

No matter. When the economy is good, presidents claim credit; when it's not, their opponents blame them. Political phrasemaking compounds the error by personalizing the process. Hence, "Reaganomics" and "Clintonomics." Among Republicans and Democrats alike, there is much mythmaking.

To his worshipers, Ronald Reagan's great economic achievements were tax cuts and spending restraint. Not so. Reagan's singular feat was supporting Paul Volcker's Federal Reserve in suppressing double-digit inflation, which had destabilized the economy (four recessions between 1969 and 1982). From 1980 to 1983, inflation dropped from 13 percent to 4 percent. This set the stage for the long expansions of both the 1980s and 1990s.

Reagan's cut in tax rates probably helped slightly, but the overall tax burden wasn't much reduced. In 1988, taxes were 18.2 percent of gross domestic product (GDP), slightly above the post-1950 average until then (17.8 percent of GDP). With a military buildup, spending restraint was negligible. In 1988, federal outlays were 21.3 percent of GDP, only slightly lower than in President Carter's last year (21.7 percent).

Bill Clinton had little to do with the causes of the 1990s' economic expansion: low inflation, low oil prices, a computer and Internet boom, a stock market boom. The claim made for Clintonomics is that paring the federal budget deficit in 1993 provided the essential catalyst by reducing interest rates. But long-term rates in 1994 were actually higher than in 1993. Many forces affect rates aside from the budget deficit: inflation and inflationary expectations, saving behavior, Federal Reserve policy, overall credit demand.

Clinton's contribution was self-restraint. Unlike Nixon and Carter, he didn't meddle with the Fed. He was a "conservative" in a pragmatic way. He knew when to leave well enough alone.

Of course, presidents do affect the economy. But their greatest influence often occurs after they've left office. FDR's enduring legacy was Social Security; Reagan's was low inflation. Some policies that are initially popular turn out to be calamitous. Under John Kennedy and Lyndon Johnson, the government followed highly expansionary policies to reduce unemployment. Initially popular, they ultimately spawned high inflation. The converse is also true. The anti-inflationary policies of the early 1980s sent unemployment to 10.8 percent. Reagan's popularity plummeted.

Sensible voters should look beyond the cheery or dreary economy of the moment. They should recognize that if presidents could control the business cycle, recessions would never occur, there would always be "full employment" and inflation would remain forever tame. Instead of judging prospective presidents on what they can't do, voters ought to concentrate on what they can do. There are plenty of real differences among the remaining candidates. But Carville is probably right. For many, it will be the economy, and it will be stupid.

http://www.washingtonpost.com/wp-dyn...020502876.html