Rich Lowry

The housing market is caught in a downward spiral that might last the rest of this year, and banks are struggling under a staggering burden of bad loans that has created a severe credit crunch. Don't fear, though, a $250 check might be making its way toward your mailbox.

That's the economic "stimulus" that Democrats are coalescing around to forestall a recession. Barack Obama wants a $250 tax rebate and a payment of $250 to Social Security beneficiaries. If that doesn't work, he has a Plan B: sending out another $250 check. Hillary Clinton wants to try $70 billion in new government spending first, then, if the new tide of red ink fails, blanket the country with $40 billion worth of rebate checks.

With the White House considering its own rebate proposal, some such scheme is likely to emerge as the lowest common denominator of sophomoric economic policy for both parties.

A $250 check is the equivalent of winning a tiny jackpot on a convenience-store lottery ticket. It's not going to spur any lifestyle changes or fund any major purchases. This is why the history of the tax rebates -- including the last time it was tried in 2001 -- is a sorry one.

Most people aren't stupid enough to think a $250 check improves their economic standing. This is keeping with the late economist Milton Friedman's "permanent income hypothesis," which said that people don't change their spending habits based on small blips in their income. In short: You can't fool people into thinking that they are richer than they really are.

So it is that research shows that most of the 2001 tax rebates were used to pay down debt or were saved. According to a study by University of Michigan economists, only about 20 percent was spent. This was a tiny stimulus at best, and if it was spent on common consumer goods -- clothing and the like -- probably went to imports from overseas.

Despite its economic nullity, rebate checks are politically seductive to Democrats because they can be focused on low-income taxpayers, and to politicians of all stripes because they show government is "doing something." Never mind that they often are irrelevant to the problem at hand -- it was a slowdown in business investment that drove the 2001 downturn, and a credit crunch stemming from the housing crisis that risks creating one now.

Rich Lowry

Rich Lowry is author of Legacy: Paying the Price for the Clinton Years .
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