Very few things in life, if any, are perfect. Most are far from it. Yet, in spite of apparent imperfections, we constantly make decisions and choose paths that are generally perceived to be the most feasible or the most needed at the moment. Such is the case in the economic stimulus plan now being framed in Congress.
There are two (or more) sides to almost everything, of course, and the proposal regarding the best approach to stimulate the nation’s economy in an effort to improve its vigor is no exception. By many measures, we are currently facing a massive slowdown in growth. The operative word, however, is “growth.” We’re still headed in the right direction, just not as fast as we have become accustomed.
Undoubtedly, the current economic state of affairs has its uncertainties, but the nation has persevered through worse scenarios in the past and, in all probability, may face similarly severe conditions in the future. The status of the US economy is always fluid, and peaks and valleys are inevitable. Knowing how to act during either situation is what makes the difference.
As we are all quite aware, there are numerous matters attracting the attention of our nation’s leaders, and even more, it seems, on the plates of the various presidential candidates. However, of all of the difficulties and challenges the nation faces, economic conditions seem to be having the greatest impact on our daily lives. Although it’s not technically true, there is emotional validity to say that the pocketbook provides the fuel for advancement.
President Bush noted in his State of the Union address Monday evening that, “our country has been tested in ways none of us could imagine” over the past several years. The obstacles the economy is encountering are certainly a case in point.
Various steps are being taken to encourage business activity and ensure sufficient money is available for undergirding and providing a solid foundation for ongoing expansion. The dramatic dropping of interest rates by the Federal Reserve in the past couple of weeks will prove advantageous in working through the current situation. The central bank and some of its major counterparts around the world have made it clear that they will provide adequate liquidity to sustain the global economy.
Adding to the mix of responses is a fiscal stimulus that will most likely include sending tax rebate checks to 117 million families (something our fearless leaders love to do a few months before an election) and providing businesses substantial incentives for investment in new plants and equipment.
Before we hear “the check is in the mail,” however, the proposed stimulus plan must be approved. Some lawmakers, particularly in the Senate, will no doubt attempt to load up this initiative with other provisions that slow down or impede its implementation. The sheer complexity of sending out the funds through our vast bureaucracy will likely get us to late spring or early summer. Nonetheless, the principle effect is psychological, and the spending stimulus will happen before the money actually arrives.
The magnitude of the impact from the proposed “rebate” will depend on how many people use it for consumption as opposed to saving or paying down debt. Economic research dating back to some of Milton Friedman’s early work and a lot of historical experience tells us that such schemes do not make a great deal of difference in a real sense, but this one is all about the perception of consumers
On the other hand, the incentives for investment are an unabashed winner. Whenever we improve the climate for purchasing plants and equipment, small businesses respond quickly and decisively, and jobs are created!
From my perspective, however, a glass half full is better than a glass half empty, and a bipartisan effort to respond in an election-year environment sends a positive message. Times are not as rosy as the recent past, but we are not in a recession. The definition of a recession calls for decline in gross domestic product for two consecutive quarters. That has not occurred, and productivity growth will in all likelihood prevent such from happening.
In spite of media headlines, which often create undue stress and depict an economy in need of life support, the nation’s economy is not ready for ICU. An injection of a swift-acting elixir is good, but crash carts are not required.