Stimulus Mania

Spurred by fear of disaster, fueled by panic within the government itself, we rushed to pass a massive financial bailout of highly dubious value. Almost everyone now agrees that it has numerous structural and oversight problems. For example, what are banks actually doing with the money they got? Who cares; let's just give them the other 350 billion. Now there is a rush to pass a stimulus package, based mainly on the notion that the government has to do something about the economy, and that it can actually help. Some already worry it won't be big enough -- the government needs to spend even more money. We call it a stimulus package, as if everyone agreed that it will really stimulate the economy. But that isn't the case. Many think it will be yet another example of wasteful government borrowing & spending, and a bloated pork project that will do more harm than good. Somewhat surprisingly, the Chicago Tribune has a good editorial up called, "The Stimulus Rush." As the editors point out

From the public debate on the need for fiscal stimulus, you would think the only open question is what form it should take. In fact, among economists, there is a good deal of uncertainty and doubt over whether fiscal policy holds much promise.

The article sounds a cautionary note for those who think we should just slap something together as fast as possible. They ask the new president to show

1) that fiscal stimulus has a good chance of paying off and 2) that the spending will be done wisely

Good ideas, but also highly unlikely. Much more likely is that a stimulus will be rammed through Congress backed by dire warnings of doom if it isn't passed. Anyone daring to object to the idea of a stimulus, or the economic theory behind it will simply be dismissed as a crank.