Relief!

Mitch McConnell always sounds like he's grumbling, so it's hard to say just how he feels about the largest welfare program in American history.  Apparently, though, he agrees that it's necessary.  Now that McConnell has broken the ice, only a few stubborn holdouts still say "stimulus" — the word du jour is "relief."  Add the restraints on the Administration's ability to dole out corporate loans, and restraints on how that loan money can be used, and the overall tone of the bill is classic Welfare State Democratic.

Progressive Democrats wanted more, of course, but Pelosi is offering some proposals for "phase four" that might offer them more satisfaction.  If, somehow, science turns out to be right and Tr*mp turns out to be wrong (imagine that!), "phase four" will be along in short order.

How will the USofA pay for the bills it's running up at the moment?  Essentially, it won't.  The Fed is gearing up to increase the money supply with extensive, near-zero interest loans to the Treasury. It will be inflationary, but that makes the biggest losers the ones with the most money.  The Fed hasn't met its inflation target since the Great Recession, so you could say there's some catching-up to do.

By the way, I really like the idea of some workers collecting more in unemployment insurance than they earned in salary: clearly, they're people who weren't making nearly enough money to begin with.

Stimulus?

You can almost read the thought balloon: "People like money, so if I give them money they'll like me – and I'll be reelected!"  Toss in some corporate giveaways — the standard Republican solution to every problem — and you have the Administration's plan to "stimulate the economy."  Economic stimulus helps in a typical recession, but the current crisis is far from typical.  It's hard to go out and spend money when you're barricaded at home, and when the places you might spend it are closed.

Democrats, of course, have no aversion to giving away free money, but hope to put some limitation on how corporations can use essentially interest-free loans, hoping to avoid some of the abuses we saw in the 2008 economic crisis: using government funds for stock buybacks and absurd levels of executive compensation.  By the time you read this, there's likely to have been some sort of "compromise" negotiated.

The current plan to pay $1200 to 85% of the American people, and a bit less to another 5%.  The "stimulus" effect would be negligible.   To many higher earners, $1200 will be just a blip in the bank balance; and with so few places to spend it, most of the "stimulus" wouldn't make it into the broader economy until the pandemic is over.  For the unemployed, $1200 won't cover a month's rent.

Proposals coming out of the House, though, seem to recognize that what America needs now isn't stimulus, but relief — money individuals and small businesses need to survive the crisis.  Needless to say, there will be plenty of resistance to new "entitlements," but if you're going to give people money, it makes sense to give it to those who need it most.

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.)

How did you spend your rebate?

I thought it was kind of serendipitous that my $600 rebate and my $650 fuel oil bill arrived on the same day. Easy come, easy go.

Today, though, I bought an immense heap of pork chops, a gigantic jug of laundry detergent, and a huge package of frozen breakfast sandwiches at Costco. I think I'd have bought those anyway, since no matter how bad the economy gets I will endeavor to continue eating and wearing clean clothes. (By the way, the frozen sandwiches cost no more than they would cost if I made them myself. Granted, they don't taste as good as homemade, but they also don't leave me with a greasy frying pan to wash.)

Okay, I also stopped at the music store and picked up a new harmonica holder, but I'm really trying to economize where I can. It's not because my income is down -- I recently started collecting Social Security, so my income is up quite a bit. Just the same, every time I pull into a gas station or shop at a super market, I feel my new income being drained away -- and I feel really fortunate to have that new income. What are other people doing?

In the meanwhile, though, the President, Wall Street, and most of the mainstream economists are talking as if the alleged "stimulus package" is about to deliver us from evil. I don't see it. I see virtually all the stimulus money going to the oil companies and agribusiness, and a good chunk of the agribusiness money going to the oil companies. In other words, the main thing I see the stimulus payments stimulating is the demand for oil.