A Tale of Two Useless Economic Plans

Well, it's that time of year. We've turned the corner on winter, the lame-duck session is behind us, and spring is approaching. It's a time when a politician's thoughts turn to daffodils, puppies, and buying votes with other people's money. This season, we have the heavyweight matchup between two competing economic 'stimulus' packages.

Before the foohforah gets too out of hand, I'd just like to inject this reminder: Politicians are essentially salesmen. Their job is to convince you that their plans are all that save us from the abyss. In this case, the 'stimulus' is needed to save the economy, create jobs, and win the war.

Now for the reality part. First of all, we're talking small potatoes here. Do the math: Bush's 'stimulus' plan amounts to six hundred billion dollars over ten years. The Democrat's plan is somewhat smaller - call it fifty billion a year. But this is a ten trillion dollar economy. Even if there was a magical machine that you could pour money into and get pure economic growth out the other side, fifty billion dollars is only .5% of the total economic output of the country. If the economy grows at 3% this year, the increase in the GDP would be six times the size of the 'stimulus'.

But wait, there's more: This fifty billion dollars a year didn't come from the money fairy. When a government 'stimulates' the economy with taxed money, all it is doing is moving money from one column to another. If it borrows the money, the increased deficit will crowd out private borrowing and push up long term interest rates. There ain't no such thing as a free lunch.

Sure, Bush's plan is better than the Democrat's craven pandering-as-economic-policy plan. His 'stimulus' is essentially the avoidance of an 'anti-stimulus' - he'd rather leave the money in the hands of the people who earned it, on the radical theory that people who earn lots of money are usually pretty good at figuring out how to earn more.

The Democrat's plan involves taxing money from the most productive people and giving it to the least productive. Somehow, in their world this creates an economic stimulus. This would be similar to the stimulus you get by jabbing a red-hot poker up the bum of a marathon runner. Sure, he may do the next 20 feet a little faster, but I wouldn't want to place odds on where he finishes the race, y'know?

The other 'stimulus' the Democrats have in mind is to tax people who create wealth, and give it to the states for infrastructure development. Because we all know that when governments get windfall money they spent it more efficiently than would the businesses it came from. Excuse me - I just felt a stimulus to retch.

Here then, are the Happy Fun Pundit first predictions for the new year: Both parties are going to go on a public relations rampage to convince the nation that their plan will save everyone from starvation, and that the other party's plan is going to either, a) bankrupt the government, b) keep the fat cats farting through silk while the poor people starve, or c) destroy economic growth. In the meantime, they will be furiously dealing in the back room to come up with a 'compromise' bill, which will in the end have the stimulatory effect of making sure major donators and voting blocs get paid handsomely on your nickel.

In the end, the final plan will have almost no effect on the economy, but will add a few more pages of complexity to the tax code and cause price distortions in the marketplace. And the U.S. economy will chug along, with the 'stimulus' plan in whatever form it takes being little more than a rounding error. If the economy does well, both sides will declare victory, and the economy will be saved from certain disaster. If economy tanks, both parties will accuse the other of messing up the bill and ruining the economy.

My advice: Don't sweat this debate too much. Let Bush compromise if it gets him some room on the war. Let the Democrats hang themselves with class envy nonsense. The real economic battle is coming soon, when the government looks to reform Medicare and add a prescription drug benefit.

And that one will be worth paying attention to.