Was Stimulus Meant to Be Temporary or Not?

When is enough enough? The US government extended payroll tax relief and unemployment benefits again. The European Central Bank lent a ton of money to commercial banks. Everyone but Germany seems to be afraid of fixing things. When does this stop?

Larry – you just ate three servings of pecan pie to “wash down” that 72 ounce ribeye.  I know honey, don’t worry I will get on that diet tomorrow. But you said the same thing yesterday. True but then I was feeding my fever – that’s no time to cut down to two servings of chocolate cake. I gotta keep my strength up!

This is making me hungry but I am beginning to get a sense that my past worries were correct. Writing in this blog almost two years ago I tearfully agreed that some stimulus was warranted for the US and world economy but also predicted that the worse thing about stimulus is that policy makers wait too late to withdraw it. And like the fact that I have to wear expando-sweat pants everywhere I go now, waiting too late to put our countries on a diet is starting to bite.

Continuing the weight analogy, few economists are really recommending an extreme basic training approach to economic policy. If anything, the reasonable people are suggesting that we simply gain 3 pounds this week instead of the usual 5. Losing weight will come soon but not yet. That doesn’t sound severe to me. Deficits that took years to build are not going to be turned into surpluses in the next year or two. But like gaining only 3 pounds this week, it is possible to have a plan that would gradually reduce the deficits over the next 3-5 years. The surplus can come later. While that approach won’t allow Italy a chance to compete in any Iron-man competitions now, it will send the right message to everyone – including existing and potential holders of Italian debt.

Pundits were extremely loud and clear last week when they pointed out how unfair it was that we might let the tax and unemployment extensions die. One congressman could hardly contain himself on the Senate floor as he described how failing to extend would undermine fairness to the least advantaged in our society. But let’s be honest. That’s depiction is a gross exaggeration. Maybe it is a lie. Put the point in this context. It will NEVER seem fair to take this money away from the people who seem to need it the most. Never. How can you take money away from people and have it seem fair? But also remember that these specific legislations were ALWAYS meant to be temporary. How is it possible that politicians who vote for things that will be temporary are never willing to let them end? How?  My answer is that they fibbed in the beginning. It is only now that they are being honest.  They want to keep these entitlements as long as possible.

After all, how else can we help people who are unemployed or who have lower incomes? This is the part that is so ludicrous and disingenuous. Keep in mind that we elect these people to govern our country and to put in place policies to meet our national goals. It is their JOB to solve these kinds of problems. So what do they do to attack unemployment and poverty problems? They legislate exactly nothing that one might call an employment or poverty program.  Instead they give us gruel – they give us supposedly temporary legislation that spreads crumbs around on the ground that are soon to disappear the next time a flock of black birds swoop in. 

These elected officials get good salaries and benefits and do nothing that even approximates an understanding of and policy towards the main challenges of our economy. What if you went to your doctor with a pain in your chest? You told her that the pain has been there for a long time but it is really hurting now. What if she told you to take a couple of aspirins and come back in the summer? I am thinking that you could have gotten that advice and help from your local barber. You wouldn’t put up with it. Yet we let these legislators take their pay to the bank every month while they treat our most pressing national problems as if they were heartburn. Of course they cannot tell us the truth so instead they inflame us with rhetoric that heats up animosity between people in both parties who would love to see our country return to growth. 

To resolve our worst problems right now we need a medium term plan to remove temporary tax changes and entitlements. We need to supplement that with real policies aimed at the things that caused our current slow growth -- a housing bubble bursting and excessive leverage among households, businesses, and government. We do not need politicians who would rather play needless class warfare games than attend to the real issues.