Changes reportedly made last night in the stimulus package would reduce its effectiveness as stimulus. Although the package includes a reasonably designed tax rebate, the two most targeted and economically effective measures under consideration — a temporary extension of unemployment benefits and a temporary boost in food stamp benefits — were zeroed out, apparently at the insistence of House Republican leaders.
The two respected institutions that have rated stimulus options in recent days — the Congressional Budget Office and Moody’s Economy.com — both give their two highest ratings for effectiveness as stimulus to the two measures that were dropped.
-Of all tax and spending stimulus options that CBO examined, the only two that it found would have a large “bang-for-the-buck” as effective stimulus and act fast to boost the economy are the unemployment insurance and food stamp provisions. Both could start injecting more consumer purchasing power into the economy within one to two months. The planned tax rebate checks, in contrast, are not likely to be sent out until June.
-Economy.com found that for each dollar spent on extended UI benefits, $1.64 in increased economic activity would be generated. For each dollar in increased food stamp benefits, $1.73 in new economic activity would be generated. No other options rated as high.
-In contrast, Economy.com found that for each dollar in “accelerated depreciation” — the main business tax cut in the package — only 27 cents of increased economic activity would be generated. CBO and a Federal Reserve study in 2006 found that the business tax cuts adopted in the last recession, which closely resemble those in the current package, had only modest stimulative effects. Despite this evidence, the package apparently contains at least $50 billion in business tax cuts while excluding unemployment insurance — the single measure most focused on the people hardest hit by the downturn — and food stamps.
-The business tax cuts also would cause states to lose at least $4 billion in state revenue, due to linkages between federal and state tax codes. The package contains no fiscal relief for states, not even to offset this loss. As a result, many states will have to enact deeper and more painful budget cuts, likely hitting areas from health care and education to aid to local governments. Those state budget cuts will also act as a drag on the economy.
The unemployment insurance and food stamp provisions apparently were rejected by House Republican leaders, who reportedly said that the inclusion of spending measures would be unacceptable to the House Republican Caucus and would derail the package. Such a stance reflects the elevation of ideology over sound economic reasoning. As Nobel laureate Joseph Stiglitz and now-CBO director Peter Orszag wrote in late 2001, “Basic economic analysis indicates that increased government expenditures can indeed be stimulative, and, in fact, are often more effective as stimulus measures than tax cuts.”[1] This is because a significant portion of most tax cuts is saved rather than spent.
On August 26, 2002, in an address to the national convention of the Veteran of Foreign Wars, Cheney flatly declared: "Simply stated, there is no doubt that Saddam Hussein now has weapons of mass destruction. There is no doubt he is amassing them to use against our friends, against our allies, and against us." In fact, former CIA Director George Tenet later recalled, Cheney's assertions went well beyond his agency's assessments at the time. Another CIA official, referring to the same speech, told journalist Ron Suskind, "Our reaction was, 'Where is he getting this stuff from?' "
In other words, there's a huge crowd of self-described conservatives standing around the Republican elephant shouting "Do something!" But what they want the poor beast to do is very unclear. And it doesn't take an expert in pachyderm psychology to know that if a big enough mob shouts at an elephant long enough, the most likely result will be a mindless stampede -- in this case, either to general election defeat or to disastrously unconservative policies, or both.
The traditional conservative believes that if you don't have a good idea for what an elephant should be doing, the best course is to encourage it to do nothing at all. Alas, the chorus shouting, "Don't just do something, stand there!" shrinks by the day.
The Republicans look like dead men walking. Almost two-thirds of Americans regard the Iraq war as a mistake. A similar proportion think that the country is on the wrong track. Americans regard the Democrats as more competent than Republicans by a margin of five to three and more ethical by a margin of two to one. They prefer Democratic policies on everything from health care to taxes.
These figures have come to life in Iowa and New Hampshire. Twice as many Democrats turned out to caucus in Iowa as Republicans. The Democrats are fired up with Bush-hatred and ready to take the White House. The Republicans are despondent and defensive. “I'd rather vote for a dead dog than a Democrat”, one New Hampshirite told this columnist. “But the way things are going it might have to be the dead dog.”
...
The party is divided into warring factions. Mitt Romney and Mike Huckabee have as much in common as their respective alma maters—Harvard Business School and Ouachita Baptist University. The party is also in danger of going off the deep end. Mr Huckabee denies that man is descended from the apes. Everyone except Mr McCain seems to think that it's a good plan to send 12m illegal immigrants back home.
Mr Bush's people pursued a self-defeating political strategy. They fired up the Republican base, ignoring the centre and rewarding their loyalists with government largesse. But Mr Bush's serial incompetence destroyed his narrow majority. And his addiction to government spending alienated fiscal conservatives.
Mr Bush's Republicans also made serious policy errors. They stuck their head in the sand over global warming. They ignored rising anxiety about stagnating middle-class incomes. They turned the war on terrorism into a defining issue and then messed it up.
