Bernanke Helps out Pelosi
Testifying before Congress today, Fed Chairman Ben Bernanke urged lawmakers to pass a new “stimulus” package, one that would help “…limit the risk of a ‘protracted’ slowdown in the economy.” This provides perfect cover to those lawmakers who have been trying to pass a stimulus package of $150 billion since January.
What, exactly, is a stimulus package? It’s when the government tries to grow the economy by “spending” on things like road construction, jobless benefits, and grants to states. You may be tempted to ask: Where does the money come from? The answer: those are your tax dollars. Most recently, the stimulus packages have been centered around tax rebates. With tax rebates, the thinking goes, we let citizens spend the money as they see fit.
Does it make sense to take money away from someone just to give it to someone else in the hope they will spend it? Yes, but only if you live in Washington D.C.
My (somewhat informed) opinion on this subject is that the bulk of the research shows these tax rebate plans do not “stimulate” the economy (even though they do seem to stimulate votes). (the link should work now.) In fact, starting in 2001, we’ve been given an unprecedented amount of stimulus. Here’s the rundown:
– The Economic Growth and Tax Relief Reconciliation Act of 2001 provided us with about $38 billion in tax “rebates.”
– The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) gave families with children an additional $15 billion in stimulus checks (in aggregate, of course).
– The Economic Stimulus Act of 2008 sent out an additional $100 billion in tax rebates.
With the last round of rebates, the White House proudly proclaimed that the bill was “large enough to have an impact,” as if the first two rounds were a waste because they were too small. It couldn’t possibly be that these things don’t work, it’s just that we didn’t take enough money away from people.
So, if we take more money away from people (who could have spent it in the first place), the economy will grow even faster. Makes sense, right?
NM
