Everybody Wants to do Something Good for the Nation by hkksew3563rd


									?Everybody wants to do something good for the nation right now. But we should
approach any "economic stimulus" from Washington with skepticism. President Bush
has asked for a program between $ 60 billion and $ 75 billion, mostly based on tax
breaks for business. House Republicans want even greater tax relief. Senate
Democrats may push for more federal spending on security- related public works and
unemployment relief. Many of these measures may serve a public good. For example,
we should build rail networks and improve security. But because the money comes
from productive taxpayers, we should be prudent in spending it. And none of the
proposals will stop the recession.
The Sept. 11 terrorist attack brought us strange days, but it didn't repeal history and
experience. Old-time New Deal stimulus used heavy federal spending — even
running a deficit — to offset the loss of private investment in a downturn. The idea
was to "prime the pump" with public jobs and projects to get people working again. It
was an oversimplification of the ideas of British economist John Maynard Keynes, so
it's probably unfair that it was called "Keynesian".
Keynesianism went into hiding in the 1980s, when none of the old remedies could
stop stagflation, and Ronald Reagan returned classical economics to the forefront of
Washington's policy. But many social democrats (called "liberals" by the media) still
advocate government stimulus. Unfortunately, the post- World War II evidence
suggests pump priming never arrived in time to seriously influence the business cycle.
It took months or years for new pro-grams to gain hold, and by that time the economy
was already in expansion. Even in the Great Depression, Roosevelt's alphabet-soup
programs did little to provide long-term jobs or capital formation. Although the
Depression started in 1929, one of its worst periods was 1936-37.
Republican tax-cutting proposals come from a different history: Reagan's tax
reductions in 1981 . These cuts did help the economy revive, but by freeing capital
and increasing incentives rather than by giving a "stimulus" pushes. Also, Reagan's
cuts were broad- based reductions in tax rates that were exceptionally high (70
percent in some cases). The current tax proposals involve tinkers and tucks. We would
see little capital rationally freed by these moves. And the temptation to bestow
Republican corporate welfare would be irresistible. We could see serious depletion of
government revenue, even as Washington is spending billions in the war effort.
The painful reality is that recessions happen for reasons beyond political convenience.
Economies build up imbalances and bad bets that must be cleaned up by the business
cycle. Attempts to paper over these forces are dangerous, merely postponing and
exaggerating the reckoning. If politicians want to do something, let them maintain the
sound money and fiscal policies that helped birth the last boom. It's not an appealing
program. It just works.

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