22 January 2008
Bush’s Stimulus Flop
Alan Reynolds’ OpEd in the January 22, 2008 Wall Street Journal may have been made moot by the 75 basis point interest rate decrease by the Fed on the same morning. Nevertheless, his argument would have been clearer if he had said (a) that some business mistakes can only be fixed over time and (b) that those banks that made too many bad loans will in time become more cautious.
Opposing his view that unemployment benefits, home housing subsidies and food stamps do little to correct business cycles, progressive economists (and politicians) believe that the consumption these policies promote will bubble up to the top 20% of taxpayers who account for purchases of recession-prone household goods. Yes, that strategy will favor their constituencies (and keep the progressive politicians in their jobs). But, in the end, the shape of the stimulus package only determines who gets the income boost first—either way it doesn’t risk being any worse than useless.
Alan Reynolds’ OpEd in the January 22, 2008 Wall Street Journal may have been made moot by the 75 basis point interest rate decrease by the Fed on the same morning. Nevertheless, his argument would have been clearer if he had said (a) that some business mistakes can only be fixed over time and (b) that those banks that made too many bad loans will in time become more cautious.
Opposing his view that unemployment benefits, home housing subsidies and food stamps do little to correct business cycles, progressive economists (and politicians) believe that the consumption these policies promote will bubble up to the top 20% of taxpayers who account for purchases of recession-prone household goods. Yes, that strategy will favor their constituencies (and keep the progressive politicians in their jobs). But, in the end, the shape of the stimulus package only determines who gets the income boost first—either way it doesn’t risk being any worse than useless.
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