Stimulating America

After picking up the second half of the 110th Congress by doing George Bush's bidding on the defense authorization bill (again, watch to see if the permanent base ban is still included in it), thoughts will turn to an economic stimulus package to try and forestall a recession. With the return of inflation (wholesale prices rose faster than at any time in the last 26 years) and the mess in the mortgage market not likely to subside, this stimulus has little chance of putting a dent in the structurally unsound economic outlook. But Nancy Pelosi is giving it a shot. The problem is that it's going to be held hostage by the Republicans as an prerequisite for yet another enormous tax cut.

Speaker Nancy Pelosi met on Monday with the Federal Reserve chairman, Ben S. Bernanke, to discuss potential action by Congress, the White House and the central bank to jump-start the economy and try to shorten the slowdown that many economists say has already begun to take hold.

But even as Ms. Pelosi renewed a call by Democratic leaders for cooperation with President Bush and Republicans in Congress, lawmakers in both parties said that efforts to develop a short-term stimulus plan could easily fall prey to partisan disputes like whether to extend Mr. Bush’s tax cuts of 2001 and 2003, which expire after 2010.

The Democrats are insisting that Republicans not inject their desire to extend the tax cuts into negotiations of a short-term rescue package intended to dampen the impact of a recession. But in interviews, several Republican lawmakers said they could not imagine a debate not involving long-term tax policy.

“The planning for 2010 in a business sense is happening now,” said Representative Dave Camp, Republican of Michigan. “So it isn’t too soon to talk about making permanent the Bush tax cuts.”

Of course, the tax cuts were seen as what needed to be done in a time of budget surpluses and prosperity. Now they need to be enacted in a downturn. Interesting.

While the Presidentials offer competing position papers (without introducing their own legislation) and people like John McCain say “The issue of economics is not something I’ve understood as well as I should... “I’ve got Greenspan’s book”, the truth is that something needs to be done to help those who are going to be rolled in these bad economic times. But if that comes at the cost of permanent tax cuts and a constraining of an incoming Democratic President's agenda, then frankly it'd be better to do nothing. Because putting ourselves in a revenue box would have the greater long-term consequences.

(P.S. Krugman seems to think that among the Democrats, Obama's stimulus plan is the least progressive, and that's revelatory, but Brad DeLong considers it far more workable and less likely to be larded up with lobbyist goodies)