The Checks Are Coming! The Checks Are Coming!
Economic stimulus plans from Washington used to be public works programs. The federal government appropriated funds so that jobs would be created around the country as roads, bridges, tunnels, highways, dams, parks and other things were built.
[IMGCAP(1)]That type of economic stimulus was so popular and the benefits were so ingrained that political movies — “The Seduction of Joe Tynan,” for example — used battles over pending public works legislation to demonstrate the leading character’s economic prowess and identification with the middle class.
In the 1980s, tax cuts replaced public works as the economic stimulus of choice. Public works opponents (or were they tax-cut supporters?) said building things took far too long to have a positive impact on the economy when it was needed. By the time the money was appropriated, the projects were selected, the work was begun and the money started to be spent, the downturn that prompted the concern and action in the first place typically already had been replaced by a recovery.
So tax cuts were the new new thing as far as economic stimulus was concerned. The virtually unchallenged belief was that a tax cut would have a faster positive impact on economic activity than the now discredited public works projects. Even if it didn’t actually happen for months, the anticipation of a tax cut and the additional consumer or business spending it caused would create a virtually immediate boost to the economy as manufacturers and retailers anticipated demand and consumers borrowed to buy things before they actually received a check from the Treasury or their withholding was changed.
That brings us to today.
President Bush last week made a big deal about the fact that the stimulus payments (per last week’s column, I refuse to call them “tax rebates”) approved in February were going to start being received Monday — four days earlier than previously announced.
Coming three months after the legislation was enacted, the stimulus payments are indeed happening faster than would have been the case with public works spending. But it’s hard to find any indication that they’ve had or will have the quick boost in economic activity supporters claimed they would have.
It’s also possible that, as was the complaint about public works, the worst is already over and that the additional spending from the payments will happen just as the major concern may be changing from slow growth to inflation. That would make the stimulus payments that seemed so right three months ago the wrong policy now.
This is an important lesson that shouldn’t be trivialized: A tax-cut-based economic stimulus program can be just as ill-conceived and poorly timed as one that relies on a spending increase. The fact that it is something called a tax cut doesn’t automatically make it a magic elixir that will cure what ails the economy any more than spending will do.
The three months it has taken for the Treasury to send out the stimulus payments has led some to call for a standby system that will expedite the process when it is next needed. The idea I’ve heard discussed is having the Treasury constantly update its records so that it doesn’t have to start from scratch every time stimulus payments are enacted. As soon as the parameters of who is eligible to receive what are determined, a few buttons would be pushed and the checks would start to be processed. Some have even suggested the Treasury run a simulation at least once a year so that the system is always ready to go.
This is incredibly ironic. In responding to criticism about the amount of time it took to get that money to start having an impact on the economy, public works supporters suggested a way to expedite that process as well. Their solution, which is remarkably similar to the one now being discussed for the Treasury, was to create a preapproved pipeline of projects that policymakers could turn to when they decided an economic boost was needed.
All this demonstrates that, whether the choice is spending or taxing, the federal budget may not be the best way to deal with relatively short-term changes in the economy. Even under the best of circumstances when the administration and Congress work together quickly, the length of time it takes to make a decision, get the money to consumers and then have it spent makes fiscal policy a less-than-ideal way to have a positive impact.
That creates a big political problem: The White House, House and Senate all want to think, and have their constituents think, they’re an important force when it comes to the economy. They also almost certainly don’t want to believe that other policymakers, like the Federal Reserve, can and do have a more direct and immediate impact on day-to-day economic activity than they do.
That makes the motivation behind enacting a stimulus less about the economy and more about looking like something is being done. It also means that the question of a spending vs. tax-based stimulus is less about the economy and more about having an excuse to implement the agenda you’re already committed to.
Keep all this in mind as you think about the White House’s gleeful announcement last week that the stimulus payments would start to be received four days ahead of schedule. Not only do the four days mean less as far as the economy as a whole is concerned, but the payments few thought would have much of a positive impact anyway may already be the wrong policy for the current situation.
Stan Collender is managing director at Qorvis Communications and author of “The Guide to the Federal Budget.” His blog is Capital Gains and Games.