In the best of times, most members of Congress are to fiscal irresponsibility what alcoholics are to the bottle -- unable to resist even though they know they should. So imagine how our leaders will behave once they are told that budgetary indiscipline is no longer a vice but a virtue.
That's the counsel now from some economists and all three major Democratic presidential candidates. With a possible recession looming, they insist the federal government needs to provide a stimulus to the economy by spending or rebating money it doesn't have. That will put more cash in the pockets of consumers, who will then spend it, boosting the fortunes of companies and their employees and staving off a downturn. Or so the thinking goes.
Hillary Clinton has proposed a package that includes money to help homeowners pay mortgages they should not have taken out, as well as funds for "alternative energy investments" that might fail the cost-benefit test on their strict merits, and possibly direct rebates, too. Barack Obama wants to provide immediate tax cuts of $250 per person, while encouraging jobless workers to remain jobless by extending the time they can collect unemployment benefits. John Edwards' plan includes many of the same elements.
But skepticism is in order. Any money that the government lays out, after all, will not drop miraculously from the sky. Since the federal budget is already running a deficit, those funds will have to be obtained the old-fashioned way -- by borrowing. More money would be spent by those who get the help, but less would be spent by those who provide it. So the whole transaction may add up to not much more than zero.
Giving money to people, as Obama urges, is the most direct type of stimulus. Oddly, though, there are only paltry grounds to prove it actually works. In 2001, the Treasury mailed rebates of $300 to $600 to taxpaying households, something the Bush administration later credited for invigorating the economy. In reality, later studies found, people generally declined to go out and spend, preferring to save the money or pay down debt. The booster rocket never left the launch pad.
Back in 1993, by contrast, President Clinton said a fiscal stimulus was essential to revive economic growth. But Congress refused, and the productive sector somehow managed to grope its way, unstimulated, into the longest peacetime expansion in history.