Stimulating Policy

The CBO has released a new report [PDF] on the current economic situation and possibilities for economic stimulus.  I’m still processing a lot of it, but it seems to me that the quick takeaway is this:

• The economic situation is not as bad as it feels.  Though the risk of recession has increased, the report tells us that “most professional forecasters are continuing to project very slow growth, as opposed to an outright recession, this year.” That’s especially good to hear when you remember that, as John Makin noted [PDF], although 2008 could be rough, 2009 looks much better provided a few steps are taken to strengthen the long-term economy.
• The stimulus plans that are currently making the rounds may not be necessary.  Some economists believe that we will see a recession, and believe a stimulus plan could provide a bumper on the economy going in, but right now this is still the minority view.
• Short-term economic gains often occur at the expense of long-term growth, and policies that might be used to cushion the effects of a recession can end up having negative long-term effects on the economy.
• The “automatic stabilizers” built into the economy already will push it forward in slower times and  help “to mitigate any economic downturn.” (This is already evident in the Fed’s sizable rate cut this morning.)

So what to make of this?  The report is written in bureaucratic "on the one hand/on the other" speak, so little is set in stone.  However, it seems to me that the report indicates that the economy, though somewhat uncertain, will continue to move forward, albeit at a much slower pace than we’ve been seeing, and that, as such, the sort of fiscal-policy stimulus that’s been bandied about is probably not the right idea. Why take action that’s potentially harmful to long-term growth when the economy does not clearly appear to be heading into a recession?

Add this to the fact that Bush has indicated he’ll largely leave the details of the policy to Congress, and the Democratic Congress is likely to hand out tax rebates to lower and middle income taxpayers whose financial habits are least likely to lead to any substantial economic stimulation.  As FreedomWorks’ resident economist, Dr. Wayne Brough, said in a statement this morning, "The notion that the government can boost the economy by collecting taxes from one group and then redistributing that money to others is outdated and wrong."

Now, as the statement says, FreedomWorks’ supports long-term measures  to keep the economy strong. But passing out wads of cash in the form of tax rebates isn’t one of those measures, and looks like, at best a misguided attempt to curry favor with certain classes of voters in an election year.