Finally, a Democratic presidential candidate has offered a plan to jolt the economy. Or is that “jilt” the economy?
Clinton says if elected president she’d:
- Send $30 billion to states and cities to “help” with the so-called crisis in foreclosures;
- Send $25 billion to low-income families to help them pay heating bills;
- Spend $10 billion on increased benefits for the unemployed; and
- Maybe, just maybe, refund $40 billion in tax payments.
So let’s take a look at the economic effect of these proposals. With regard to the foreclosure money, cities and states are going to divvy up the money among people who have defaulted on their mortgage.
Yes, it’s tragic that so many people are losing their homes to foreclosures. But do we know if all of them were spending their money wisely? Could some have been wasting their income instead of making mortgage payments? And if so, the bailout for them creates a moral hazard, encouraging people to behave imprudently with the expectation that the government will come to the rescue if things go south.
As for the heating subsidy, no one wants low-income people to be cold. But does a subsidy, which insulates consumers from the full price, encourage some to waste energy?
And the lesson of the 1996 welfare reform legislation—which Bill Clinton signed and boasted of—was that more money for the unemployed encourages people to stay unemployed. That’s hardly a boost to the economy.
Finally, she might send $40 billion back in tax refunds. Several points need to be made about this.
First, it’s just a maybe. Second, $40 billion in a $13 trillion economy really cannot have that much economic impact. After all, that amount comes to just 0.3 percent of the economy’s output.
Finally, because this whole proposal is a one-shot deal, the $40 billion means that recipients might spend a few hundred dollars and then stop. Some long-term stimulus, eh?
Oh, and did we mention there has been precious little discussion on how all of this spending will be paid for, except for that eve-present catch-all: “repeal tax breaks for the rich.” That’s quite a bill to hand the taxpayers.
Clinton’s economic stimulus plan is just Keynesianism writ large, because it encourages short-term pumps over long-term investment and growth. The only thing this package is intended to boost is . . . her poll numbers.