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It's not a stimulus, it's deficit spending

Andrew Samwick

TEXT OF COMMENTARY

KAI RYSSDAL: President Bush made a cameo appearance at that GOP retreat out in West Virgina today. He said he's glad Democrats and Republicans have found a way to finally get along. But commentator Andrew Samwick says the pricetag for all that collegiality is going to be too high.


ANDREW SAMWICK: Bipartisan consensus may not be all that it is cracked up to be.

The $150 billion package has two main features: First, it provides rebates for low- and middle-income households. Second, it offers incentives for businesses to encourage spending.

There has been no discussion to repay the money through higher taxes in the near term. We should drop the euphemism of "stimulus package" and call this agreement by its proper name: "Deficit spending."

It's ironic that the proposed cure for our economic woes is just a different strain of the disease. Cheap credit and imprudent lending policies by some bad actors in recent years led to over-consumption and over-investment in the real estate sector. The result was economic activity beyond the level more sensible policies would have yielded.

But hindsight does not appear to be 20/20. If we acknowledge that bad loans fueled the mess, then why would we maintain the same level of activity through additional borrowing by the government? No good explanation comes to mind.

Maybe we're simply addicted to borrowing. We've maxed out our credit lines in the private sector and with the rest of the world. We will now use the government to write ourselves a check for $150 billion to be spent on our own consumption today but paid for by future generations.

Why are we entitled to pass them this additional debt? When the economy slows, we should expect some cyclical widening of the deficit. Even with no change in policy.

An honest fiscal policy would be calibrated to balance the federal budget over a complete business cycle. If we have no intention of running an additional $150 billion surplus when the economy turns around, then we have no business pushing this deficit bill forward now -- regardless of where we are in the electoral cycle.

RYSSDAL: Andrew Samwick is a professor of economics at Dartmouth College. In 2003 and 2004 he was the chief economist for the president's Council of Economic Advisors.

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