THIS SPRING, most of us who
While we enjoy the feel of paper presidents 'twixt thumb and fingers as much as the next fellow, those six bills per worker are apt to stimulate China's economy much more than our own. Most of us will use the rebates for consumer purchases in what once was standard therapy for a wan economy. But as Alan Tonelson of the U.S. Business and Industry Council notes, things have changed.
In 1997, says Mr. Tonelson, about 38 cents of every dollar spent on consumer goods bought imports. Today that figure is 61 cents--and much more in key areas. For instance, 92 percent of the consumer electronics bought in America are imported, as are 96 percent of men's shirts and 86 percent of women's blouses. America's de-industrialization in favor of today's information/service/"New" economy--which won't be adding workers to meet a greater demand for TVs or Tickle Me Elmos--has largely vitiated the old stimulus formula.
Thus, the rebates are likely to deepen the federal deficit, which may eventually worsen any recession. Last year, the deficit was $163 billion; in fiscal 2008 it's projected to reach $410 billion. The difference--$247 billion--is more than half accounted for by the $150 billion in rebates and temporary tax cuts authorized by the Economic Stimulus Act of 2008. Those rebates and cuts, notes Brian Riedl of The Heritage Foundation, come dollar for dollar from the overall economy. "No new [net] spending power is created," writes Mr. Riedl. "It is merely distributed from one group of people to another."
To stave off recession--indeed, to rehab a U.S. economy addled by sagging home sales--a two-part strategy unrelated to consumer spending holds promise.
The first part is to cut tax rates, which assumes renewing President Bush's 2003 tax cuts, programmed for self-cancellation. In the 18 months after those cuts, says Mr. Riedl, "business investment surged, the stock market leaped 32 percent, and the economy created 5.3 million new jobs. Overall, economic growth doubled." Moreover, notes The Wall Street Journal, tax revenues from 2003 to 2007 climbed by $785 billion.
One may argue that an economy dazed by 9/11 had nowhere to go but up, or question the quality of those new jobs, or observe that bulls on Wall Street can be pretty scrawny by the time they hoof it down to Main Street. But the historical evidence is strong that any president who lowers tax rates--from John Kennedy to Ronald Reagan, from Lyndon Johnson to George W. Bush--prevents, reverses, or buffers a downturn.
The other prong of strengthening the economy is to cut spending. In the short term, that means a declaration of war on "earmarks"--those constituent goodies tossed into spending bills at the last minute by Congress members, often anonymously. In his State of the Union address, Mr. Bush decreed that unless earmarks fell by half, he would veto bills containing them. Sen. John McCain, the presumptive GOP presidential nominee, vows to stamp them out altogether if elected. With a little gumption, Mr. Bush could do that right now by ordering federal agencies not to spend money on projects smuggled into law when nobody was looking. The Constitution's on his side.
In the longer term, the nation must get control of entitlement programs that will become Red Seas of debt when baby boomers start to draw upon them. Mr. Bush ineptly presented, and Democrats unconscionably politicized, the idea of partially privatizing Social Security, but that's precisely the kind of bold reform that's needed to keep the nation's promises to one generation of Americans without pauperizing another. Tell the Australians, who've marketized their national retirement system, that they have to go back to the low-yield state-run system and they might find another use for a eucalyptus tree than to feed koala bears.
Since a mass return to the Treasury of our $600 checks is unlikely, here's an alternative use: Let's buy some market-oriented economics books, read them, and then demand of the politicians that they follow some proven policies to economic health.