Economic Stimulus as Political Theater

If the definition of insanity is doing the same thing again and again, but expecting a different result, then we may need to call a psychiatrist to diagnose the Washington politicians and Federal Reserve chairman who want yet another government “stimulus” package to treat today’s economic problems. The Democratic congressional leadership, led by House Speaker Nancy Pelosi, is pushing another spending package, at the outlandish price of $300 billion. On Monday, Federal Reserve Chairman Ben Bernanke, whose record in handling the economy has been anything but stellar, chimed in with what was described as a “tentative” endorsement of a “narrowly focused” stimulus bill. Bernanke’s definition of “narrow,” however, may not be the same as most people’s.

This newest package would come on top of the stunningly massive $700 billion bailout of financial institutions that he and Treasury Secretary Hank Paulson created. It came on top of the bailouts of AIG, of Fannie Mae and Freddie Mac, of Bear Stearns, and – before all of that largesse – on top of yet another congressional “stimulus” package in February that sure as heck didn’t stave off the crisis. This is stimulus like the power drinks that provide a caffeine explosion, followed by inability to stay awake.

Buried yesterday in a news story in The Washington Post is the hard truth: Experts across the political spectrum know the stimulus is more show than substance. To quote the key paragraph: “Many Republicans argue that money for such projects would be spent too slowly to spur short-term economic growth, a concern shared by some liberal economists. Republicans also argue that aid to the states would reward irresponsible spending by some legislatures. In January, the nonpartisan Congressional Budget Office concluded that neither strategy is a very effective way to stimulate the economy.” Talk about understatement.

Of course, any stimulus money must come from somewhere. In this case, that “somewhere” is the wallets of American taxpayers. House Financial Services Committee Chairman Barney Frank was explicit about that reality yesterday. “I do think this is a time for a kind of very important dose of Keynesianism,” Frank said, referring to economist John Maynard Keynes, the progenitor of modern tax-and-spend economics. And Frank spoke even more specifically: “I believe later on there should be tax increases.” What Frank didn’t offer is the simple arithmetic: $300 billion amounts to $1,000 of new taxes for every man, woman and child in the United States. Forget stimulus: In both senses of the word, that’s depressing. The government could instead borrow another $300 billion from China. The sad fact is that our politicians are addicted to government spending. Like junkies everywhere, they face a haunting question: What to do if their dealer says it’s time to pay up?