According to an old joke, anyone who’s driven in Manhattan knows how long a nanosecond is: It’s the time between when the traffic light in front of you changes from red to green and the person behind you starts honking the horn.
Barack Obama didn’t shift gears quite that swiftly. But while he campaigned like a conservative (insisting he was in favor of tax cuts, etc.), his first proposal as president-elect came from the old liberal playbook.
“We are going to need to see a stimulus package passed either before or after the inauguration,” he told reporters in his first post-election news conference. “I want to see a stimulus package sooner rather than later.”
What form would Obama’s “stimulus” plan take? “We need a short-term economic recovery act,” explained his Chief of Staff Rahm Emanuel, that puts Americans to work “building our roads, our bridges, our schools, our water systems.”
Now, our nation’s economy clearly has slowed considerably in recent months, prompting the usual calls in Washington: “Don’t just stand there -- do something!” House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, for example, advocate a “stimulus package” that would cost between $60 billion and $100 billion. They aim to pass the measure during a lame-duck congressional session -- before year’s end and before Obama even takes office.
There are steps lawmakers should take, but they can’t make the economy better by simply mailing checks to taxpayers. They tried this twice during the Bush administration, and it failed both times.
That’s no surprise, though. After all, as my colleague Brian Riedl points out, Congress doesn’t create money. Before it can “give” anyone anything, it must either tax the money from productive citizens or borrow it from capital markets -- leaving those markets with less money to spend elsewhere. “Government spending merely redistributes existing income, doing nothing to increase productivity or employment, and therefore nothing to create additional income,” Riedl notes.
For example, as part of the first Bush stimulus package in 2001, the federal government mailed taxpayers $600 checks. And we spent that cash: Consumer spending jumped, but investment spending dropped by the same amount. Meanwhile the overall economy sputtered, growing just 1.6 percent that quarter. We tried the same experiment again this year. And, again, it failed.