The next economic stimulus package

As I predicted way back on Groundhog Day, that stimulus package that was supposed to rescue us from economic stagnation turned out to have been a bust. The reason, clearly, is that it was more a product of political considerations than economic considerations. Giving away "free" money always is popular with the public, but it wasn't especially helpful.

To the extent that the cash was used to pay down consumer debt, it may have delayed some write-downs by the banks -- but given the state of American indebtedness, most of those who used their "Bush Bucks"* to pay credit card bills probably were in just as much trouble when the next month's batch of statements arrived.

It seems likely that most of the remaining rebate money was spent on gasoline. The part of the oil company profits that didn't go overseas went to the usual fat cats, and wasn't spread through the economy to any significant extent. The multiplier effect of the rebates, it follows, was insignificant.

Now Democrats are talking about another stimulus package. Mind you, just before a national election is really a very bad time to discuss an economic stimulus because there's no possibility that politics won't play a big role in what takes shape -- but there are a few level heads in the relevant Congressional Committees, so perhaps there are a few rays of hope for a genuinely helpful package this time.

The hardest part will be enacting a package without rebates. A new round of rebate checks will be no more helpful than the last round -- but the temptation to woo voters with dollars may be too strong to resist. If the presidential candidates get on the rebate bus, there's absolutely no hope of putting the money to better use.

To be worthwhile, stimulus spending must be targeted. A good start would be direct financial assistance to state and local governments. State and local governments are major employers, and many state constitutions mandate balanced budgets. When sales tax revenues fall -- and they have fallen fast because of the current recession -- government employees are laid off.

Not all aid to the states should wind up in their general funds, though. Some should be specifically targeted towards infrastructure improvements. Workers in the construction trades were particularly hard hit by the collapse of the housing market, and infrastructure projects could put many of them back to work.

Yes, politically connected contractors, as always, would get the lion's share of the contracts -- but I don't care if certain brothers-in-law profit so long as they are paying worker salaries. In my ideal world, contractors being paid with federal funds would be required to hire union workers, but that's probably way too much to hope for, even if the Democrats win big in November. There still are entirely too many "New Democrats" out there.

If there was anything good about the 2008 Farm Bill, it was the improvement in the Food Stamps program (now to be known as the Supplemental Nutrition Assistance Program for the sake of a snappy acronym), but rising food prices make even more improvement necessary. I also was pleased by the expansion of unemployment insurance benefits. Both programs pump money into the economy at the bottom, where it is certain to be spent, and have the greatest multiplier effect.

In the long run, though, no economic stimulus will be especially effective if it drives the federal government deeper into debt, further depressing the value of the dollar. To the greatest extent possible, federal stimulus spending should be paid for with cuts in other areas. I can think of two places to cut, right off the bat: oil subsidies, and agricultural subsidies. Big oil and big agribusiness have been making out like bandits (an apt comparison) while the rest of America has been suffering.

I'd also suggest changes in the Alternative Minimum Tax: index it for inflation, so that Congress need not go through it's annual ritual of raising the floor amount; and make what essentially is a flat tax progressive, so that the super- and super-duper-rich pay more than the current 28%. Of course, the AMT could be eliminated entirely if Congress had the guts to undo some Reaganomics and create a couple of higher tax brackets for both individual and corporate income taxes.

In brief, I think the people who got us into our current mess should pay to get us out of it.

*(Note: I heard the expression "Bush Bucks" from my daughter. I don't know how widespread its use might be.)

Farmer's market

As our mothers used to remind us when we didn't finish our dinners, people are starving in (fill in country of your mother's choice.) The odds are excellent, whichever country she used as an example, that people are indeed starving there. The price of food is up significantly worldwide, and the very poor can't afford to buy it.

The reasons cited to explain high food prices include increased demand, higher costs of production because of the spike in oil prices, a drought in Australia, diversion of food crops to the production of ethanol, speculative movement of capital from erratic stock and bond markets to commodities, and more. Farmers in both the United States and Europe are earning record profits from sales -- and raking in more cash from government subsidies.

Why, you may ask, should we subsidize agribusiness when it's making record profits? You can't argue that farmers need subsidies, either to stave off bankruptcy or to encourage production.

But wait, cries the farm lobby. If you cut off our subsidies, food prices will go even higher!

On the surface, that seems like a reasonable argument. Look a little deeper, though, and you can find the holes. Farm subsidies by wealthy nations long have undercut agriculture in the developing world. When it costs less to buy cheap, subsidized imports than to grow food at home, local farmers can't compete. The only agriculture that survives is the production of cash crops like coffee, cacao, and coca. Then when imported food becomes prohibitively expensive -- as it is now -- there are no local farmers left to fill in the slack.

In the United States, even programs to provide food for famine victims in other countries have been little more than another agricultural subsidy. The food we provide to other countries, by law, must be grown in the United States and shipped only via United States shipping lines. By the time it finally arrives in, say, Africa, many of those who needed it are beyond help. At the moment, there are proposals to allow "as much as" one-third of U.S. food aid to be purchased in the area where it is needed, but the farm lobby is fighting even that.

There's no reason to think the situation will improve if Barack Obama becomes president. Obama, a loyal soldier in the service of agribusiness, fought hard to preserve the high tariff on imported ethanol when the Bush administration proposed eliminating it. (Would the Bush administration have made the proposal if there had been any real chance of passage? It's impossible to say, but I suspect the answer is no.)