We’ll See

THE BE YOUR OWN ECONOMIST ® BLOG

You’ve probably heard or seen an announcement that the House leadership reached a deal with the Bush administration for a $150 billion economic-stimulus package.

Here’s a description from the CNNMoney web site (http://money.cnn.com/2008/01/24/news/economy/stimulus_package/index.htm?postversion=2008012417:

“Congressional leaders and Bush administration officials agreed Thursday on a $150 billion stimulus measure aimed at keeping the economy from falling into recession.

“Most single taxpayers would get $600 and most two-wage households would get at least $1,200. The deal includes an additional amount of $300 per child. A total of 116 million taxpayers will receive checks of some size.

“The main exception: higher-income taxpayers or individuals earning $75,000 or more or couples earning $150,000 or more. They would get reduced rebate checks, or none at all, depending on their income.”

Will it work? We’ll see.

It will boost consumption and will also boost liquidity, and both are necessary. The big question, of course, is, “Will the stimulus be sufficient to keep the economy out of the ditch to which it appears to be heading?”

No one knows, but there are reasons for doubt. Most observers credit the previous stimulus package with assisting the economy’s recovery from the 2001 recession. That shot-in-the-arm arrived at the end of the trough when the economy was poised for recovery. It was not intended to forestall recession.

Congress and the president hope today’s package will prevent recession. Preventing recession and aiding recovery are very different. The former is more difficult than the latter because the economy will eventually recover on its own, with or without stimulus.

And there is the analogous question of whether we are using one bucket of water on a three-bucket fire. The package may not be large enough to deal with the economy’s enormous problems: The mega housing slump, the credit market freeze-up and the high cost of energy. The Fed is helping with its bucket, too, but that may still leave us one bucket short.

© 2008 Michael B. Lehmann