"Crank This Sucker Up"

Deb Riechmann writes for the AP that President Bush supports “an economic rescue package that would include extra money for food stamps and jobless benefits in addition to tax rebates of hundreds of dollars each for millions of Americans. … ‘Crank this sucker up,’ he exclaimed…”

But the only suckers are the ones who believe that Bush’s plan will do any long-term good.

There are two obvious problems with Bush’s proposal. First, it includes no commitment to offsetting the welfare transfers and tax rebates with reductions in federal spending. Second, it seems to promise more federal spending to cover the additional welfare transfers. In other words, spending will go up even more, while tax revenues will go down. This will be achieved through the magic of deficit spending, which necessarily takes real wealth out of the private economy by reducing investments, and/or more inflation. And, to address the problem of unemployment, Bush will pay people more not to work. That’s Bush’s strategy for “rescuing” the economy.

The Democrats are unhappy because Bush does not want to bump up federal spending to even higher levels than he already plans: “‘We want a balanced package of tax rebates for the middle class and spending stimuli that jump-start the economy quickly. The president has included one; he also needs the other to quickly improve our economy,’ said Charles Schumer, D-N.Y.”

Because the way to “jump-start the economy” is to forcibly take even more wealth from the people who earn it and turn it over to bureaucrats. “Spending stimuli” in this context is a euphemism for taking other people’s money for political payoffs to special interests.

The Denver Post agrees with the basic strategies above but also wants more tax breaks for businesses and, apparently, some sort of federal bailout for people who signed onto mortgages that they cannot now afford. Oh, and force down the interest rate more.

Nowhere in the popular media have I read about the policies that would actually improve the economy over the long term: cut (or at least restrain) federal spending and reduce political economic controls.

Cato’s Daniel Mitchell gets the basic problems with Bush’s proposal:

The president’s proposed stimulus based on “temporary” tax cuts designed to boost “consumer spending” will not work. It is a disappointing re-run of the misguided policies of Jimmy Carter. Rebates are particularly disappointing because they resuscitate the discredited Keynesian notion that an economy benefits when the government borrows money from people in one sector of the economy and distributes it to people in another sector of the economy. Economic growth occurs when there is an increase in national income, not a redistribution of national income.

However, even Mitchell, a supply-sider, talks about tax cuts without mentioning spending cuts:

That is why lower marginal tax rates on work, saving, and investment are the best short-term and long-term strategy for faster growth. But such tax rate reductions should be permanent since temporary tax cuts — even well-designed tax rate reductions rather than rebates — do little more than generate economic activity today at the expense of less activity in the future.

Yet the first part of Mitchell’s comments explains why tax cuts without spending cuts don’t work.