BY MARK BEAN
On Wednesday The Onion, a satirical newspaper, reported a special action taken by our esteemed legislative branch. Members of the U.S. Congress had passed "a bold new fiscal stimulus package that calls for the purchase of a pair of alpacas" named Jefferson and Bongo, who would live in a pen in the Senate chamber. Profits from shearing their fleece would "solve the sub-prime mortgage crisis, boost consumer confidence and pump much-needed liquid capital into the market."
Meanwhile, the real Congress has been working on a real plan to stimulate the economy.
President Bush has advocated a plan to send $300, $600, or $ 1,200 checks to American citizens as part of an economic stimulus package. The $150 billion package would potentially be divided into two parts: about $100 billion for individuals and $50 billion for businesses. The bill is supported by the White House (through the Treasury) and the House of Representatives, leaving the Senate to provide the final stamp of approval and add earmarks before the IRS cuts a check to you.
The IRS paying you - sounds like a good idea, right? Well, it is helpful to look at the theory as well as the major negotiators in the deal. The theory is to promote consumer spending in the economy, and the efficacy of any stimulus plan would depend in large part on whether rebate recipients consume more or simply save their rebate. If consumers save the money, the economy will not benefit, even though the package is impressive in size. In fact, when the numbers are crunched, the $150 billion package is roughly equivalent to 1 percent of United States GDP.
And what about the major negotiators on the stimulus package?
Henry Paulson used to be chairman and CEO of a prominent global investment bank, Goldman Sachs & Co. In 2006 he was nominated to become United States Treasury Secretary. He had a distinguished track record at Goldman and is highly respected by the financially savvy on Wall Street, so even if you don't like Bush, give Paulson some credit. Nancy Pelosi is the House majority leader and a Democrat. John Boehner is the House minority leader and a Republican. All three likely had different ideologies informing their decisions, but they were united by a sense of urgency.
It is laudable that this group of negotiators was able to move beyond partisan politics in order to quickly build an economic stimulus package including rebates, and history is on their side. Indeed, a similar economic stimulus plan was enacted in 2001 when the United States mailed out tax rebates and provided other stimuli to the economy through businesses. But did the 2001 plan work? According to Jason Furman, a senior fellow at Brookings Institution, the rebates did stimulate the economy, but could have been even more effective had they also been distributed to lower-income citizens who don't pay taxes. And that debate over preferential treatment will likely take center stage in the Senate.
Indeed, some in the Senate claim the bill is insufficient and aim to augment the bill with aid to the unemployed and low-income demographic. Additionally, Bush doesn't want to increase taxes to pay for the stimulus package, but critics decry what they perceive to be yet another egregious addition to the U.S. budget deficit, which affects the national debt. And the budget hawks may have a point. The U.S. government already owes approximately $5 trillion to creditors who hold U.S. debt instruments. When unfunded Medicaid and social security obligations are added, the debt level rises to a staggering $59.1 trillion.
Whether you believe that the tax rebates are unjustifiable or whether you believe they are a necessary economic stimulus, one thing is for sure: if you do receive a rebate from Uncle Sam, spend it. Or give it to me and I'll buy two pet alpacas.
Mark Bean is a senior majoring in economics. He is from Lindon.
Copyright Brigham Young University 31 Jan 2008
