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OPINION & EDITORIAL

Stimulus needed for legislators’ minds, not economy

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Also by Corey Sheahan:

Free trade our best chance (December 3, 2007)
Prognosis poor on hospital tax (November 5, 2007)
Giuliani's impact on NYC overrated (October 23, 2007)
Senators step perilously toward war (October 8, 2007)
Religious group funding not 'according to the gospel' (September 24, 2007)

by Corey Sheahan

Tuesday, January 29, 2008

As the U.S. economy continues to fluctuate, politicians on both sides of the aisle are pressing for the passage of an economic stimulus package to help stave off the threat of recession. At first glance, the package — whatever its eventual form — sounds like a good idea. Recessions are, by definition, periods of sustained economic regression during which a significant portion of Americans suffer financially. As usual, our politicians are displaying an incredible lack of understanding on this key issue.

If passed, the economic stimulus package will only serve to delay the inevitable correction that will be necessary to fix the causes of the (possible) recession. By passing the burden to future generations, our politicians are compounding the problem. The various packages are nowhere near large enough to effect significant change in our economy. In a recent article in Newsweek, Robert Samuelson noted that the $50 billion proposals may sound large, but represent a tiny fraction of our $14 trillion economy.

Furthermore, the plans attempt to stimulate growth by encouraging both higher levels of investment for the future and current consumer consumption. In his op-ed in The Washington Post, Steven Landsberg points out that investment and consumption are — except for in the very short-term — almost always mutually exclusive. It’s impossible to increase both at the same time, especially in times of slow growth or recession.

So this leads me to a broader question about the nature of public policy: Why can’t our government embrace the bigger picture and focus on the long-term economic health of our country? Furthermore, even if it were able to do so, what would that long-term policy look like?

If you are optimistic about our leaders, you argue that they’re trying to make good policy, but simply pass bad legislation out of ignorance or bad information. There are significant reasons to believe that it’s almost impossible for the government to pass consistently constructive economic policy — I’ll get back to those in a bit. If you’re pessimistic about public leaders, you believe they care only about re-election and make policy solely for that purpose. It’s not altogether surprising that in an election year, both parties are eager to throw money at voters.

Either way, it’s unrealistic to think the government is capable of always knowing what’s best for us. Not only is it condescending, the idea is flat-out wrong. For an illustration of why the private sector is superior to the public in economic matters, imagine that you’re running a business — your job is to make decisions that will earn you the most money possible. Depending on the decisions you make, you’ll either prosper and make money, or undoubtedly go out of business. This is a good incentive for making intelligent, informed choices.

Now imagine that you’re in public office and you face re-election in two, four or six years. Would you always pursue intelligent, fiscally sound economic policy? Or would you pursue policy that gets you re-elected (and no, these do not always coincide).

By design, the most effective incentives for encouraging good decision-making are absent in the public sphere. Yes, it’s true that politicians face re-election, but this is only an incentive to appear to make good decisions, rather than to actually make good policy. The distinction is critical. By sending $300 checks (or whatever the eventual dollar amount) to every American, Congress appears to be helping the economy. Of course, they’re doing nothing more than compounding the problems that created the threat of recession in the first place, thereby defeating the goals of the stimulus package.

Recessionary fears are well-founded and an economic downturn may, in fact, cause hardship for many Americans. However, the U.S. economy is far too strong to suffer more than a short-term correction.

So what should the government do? In short: not much. The government plays an important role in the economy, but the role should be mostly limited to that of a referee’s: Ensure the game is played fairly, but don’t determine the outcome of the game. There are certainly good ideas for how government money should be spent — any bill that reduces our dependence on foreign oil is cool with me, but that’s another column altogether.

Corey Sheahan (csheahan@wisc.edu) is a senior majoring in history and economics.

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Anonymous (January 29, 2008 @ 8:43am):

I'm going to spend my $600 on some Middle Eastern oil.

Anonymous (January 29, 2008 @ 8:48am):

I disagree with you, Corey. Everyone knows the best way to create a thriving economy is by triggering massive inflation. Remember when you could buy a loaf of bread for a nickel, a gallon of gas for $0.98, or a stamp for a quarter.

To paraphrase Dark Helmet from Spaceballs: keep printing money, assholes!

Anonymous (January 29, 2008 @ 4:11pm):

Apparently my column didn't get to Washington in time-

http://badgerherald.com/updates/2008/01/29/house_passes_biparti.php

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