It is a field day for practitioners in politics. In South Carolina the hottest issue this week wasn't the specter of recession and what the federal government should do about it, but the Confederate flag. A citizens' group pressing for the restoration of public display of the flag was running ads promoting Mike Huckabee over John McCain and Mitt Romney.
Huckabee, one South Carolinian said, is "a Southerner, who understands why Southerners value our heritage." Huckabee himself said: "You don't like people from outside the state coming in and telling you what to do with your flag. In fact, if somebody came to Arkansas and told us what to do with our flag, we'd tell them what to do with the pole."
In Michigan, on the other hand, the economy dominated the campaign, but the candidates concentrated on Michigan's distinctive problems, posed by the declining American auto industry. Such long-term problems were not what was exercising the president and congressional leaders in Washington. They were concerned with how they could jolt the economy out of the slide caused by the mortgage crisis.
The prescriptive remedy for overspending is reduced spending. Although it isn't being said in as many words, the trouble we are in is an aspect of overspending. But, paradoxically, the solution is not only to spend more, but to spend it quickly.
Mark Zandi, chief economist at Moody's Economy.com, proffers recent findings about how this might be done. An increase in unemployment benefits, he says, produces about $1.73 in additional consumer demand for every dollar spent. If Congress acted on that assumption, then $100 billion going directly to unemployment pools would increase consumer spending by $173 billion.
If Congress elected instead to energize the money being spent by reducing (or forgiving) taxes, it would do well, but not nearly so well: $100 billion in tax rebates would mean $119 billion infused into the economy. But hear this, $100 billion returned to taxpayers through reduced tax rates would mean only a $59 billion increase in spending. It should not surprise us that the propensity to consume is highest among the unemployed. But it is discouraging to be told that reduced income taxes do not result, pro tanto, in increased consumer spending.