Economic stimulus plan.

George Bernard Shaw once wittily quipped that "if you took all the economists in the world and laid them end to end, they would still not reach a conclusion." Fortunately for us, there is one issue for which this quote does not apply. According to the Associated Press of February 4, 2008, an economic aid plan to send rebates of $600-$1,200 to most American taxpayers passed in both the House and Senate. Now, all the remains is for both legislatures to kink out the differences between the two versions of the bill and put the law into effect. At a time when the Federal Reserve has reduced the interest rate by three times within the past two months and the stock market has now been classified as a "bear market," meaning a twenty percent fall in value from its last peak, and the economy of the United States is officially entering into a recession, the government's fiscal aid plan is welcome news to all. Nevertheless, will this plan succeed? I would answer no.

First, the economic aid package's indirect nature makes it ineffective at stimulating the economy. As Daniel Deneen of the Bloomington wrote on February 3, 2008, an economic stimulus plan in the form of tax rebates is indirect at best. The government's expectation that American's will spend the money on Americans goods and thus stimulate the economy is flawed because it does not necessarily ensure that goal. The Business Week of the same date also notes that Americans tend to save in times of economic hardship. However, this trend is the exact opposite of what is needed to get the economy back and running. Furthermore, even if Americans spend them money saved from the tax rebates, there is no guarantee that that money will be retained by American companies. The Pantagraph believes that "the majority of the funds will probably end up being spent on electronic goods from Asia, oil from the Mideast or Venezuela, the lottery, riverboats or exorbitant charge card interest and fees." The only way for the government to truly stimulate the economy is for the government to pass a "New Deal"-like bill, to directly pump money into the American economy. Thus, the current stimulus bill fails because it does not directly ensure that it will stimulate our economy.

Second, the stimulus plan will not fix the economy because it is only a temporary fix to a problem that needs a permanent fix. As the Economist of February 3, 2008 notes, the current recession and economic crisis America is facing primarily stems from the credit crunch. The only real way, the magazine argues, to solve the economic problem we are facing is not to pass temporary measures, but to target the structural deficiencies in the market. The Forbes of February 5, 2008 reports that current Secretary of the Treasury, Henry M. Paulson said while a stimulus bill might be a temporary solution, it does not provide a real solution: "My apprehension is that with unemployment at 4.9 pct, to extend benefits would be unprecedented and would send a message to the world that I think would be the wrong message." Furthermore, Paulson claims that simply giving off tax rebates and other forms of savings to Americans will only make them dependant on government funds and the economy will continue "to worsen to the point that it stops growing and the problem becomes more severe."

Which leads me to my third point, this bill could potentially worsen the current economic situation of America. As previously mentioned, the root of the problem is too much credit. However, part of the economic stimulus package increases to the maximum loan limit eligible for purchase by Fannie Mae and Freddie Mac to $729,750. While the point of this section is to encourage businesses to invest money easily, it ignores the root of the problem. Thus, the seed for another credit crunch has been replanted by this economic stimulus package. Investor Morgan Housel of the Motley Fool wrote on February 5, 2008, "The reason we're in this mess has nothing to do with consumers not spending enough money. If anything, it's that we spend far too much money and finance it with fictitious real estate valuations." The problem, thus, with this economic stimulus package is that it could potentially worsen the economy is another credit crunch is allowed to manifest.