WASHINGTON -- The stimulus package is a terrible piece of necessary legislation.
Its flaws are gaudily obvious. The bill was written in monopartisan secrecy, weighed down by irrelevant spending, considered in a rushed, uninformed debate and passed on a party-line vote. The law contains provisions that seem to weaken welfare reform and invite trade disputes. And it adds a massive burden of debt to existing massive entitlement obligations requiring massive borrowing from international sources -- or, if such credit dries up, the massive printing of money to buy these bonds, leading to inflation.
But while the legislation was deeply flawed, there was little alternative to action. The usual recession remedy -- the lowering of interest rates by the Federal Reserve to loosen up credit and spending -- is of little use when the credit system itself is broken and rates are already near zero. The president and Congress were left with one option: attempting a fiscal jolt to counter the economic cycle. Such efforts in the past have often been mistimed, with the cavalry arriving just after the settlers have been massacred. But one has to try. In this case, necessity was the mother of excess.
Beneath that excess, however, the stimulus does have a hidden virtue. A good portion of the funding is channeled to the poor through programs such as food stamps, unemployment insurance, the child tax credit and the earned-income tax credit. This has a humanitarian justification -- unskilled workers and minorities are hurt first and hardest by unemployment.
But a focus on the poor has an additional economic justification. Dollars given to the middle class during uncertain economic times are likely to be saved -- particularly when the middle class calculates (not unreasonably) that current government largesse may require future tax increases. Assistance provided to the poor, in contrast, is used immediately for necessities. The Congressional Budget Office calls spending on food stamps the most directly stimulative of fiscal policies. Helping the poor and stimulating the economy in a timely fashion are complementary goals.
Even here, however, the stimulus committed mistakes -- and missed opportunities for innovation. "The rush to push money out quickly," observes Philip Levy of the American Enterprise Institute, "left no time to develop creative new approaches."
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