President Bush mentioned (outlined is really too strong a word) his 1% solution for the economic slowdown this morning. That is, a temporary stimulus that equals about 1% of GDP. That is, $140 billion.
This comes after Ben Bernanke declared Thursday that he favored temporary fiscal stimulus of about that size, and made pretty clear that he was opposed to any longer-term stimulus like an extension of the Bush tax cuts due to expire after 2010. I declared at the time that this sounded remarkably Keynesian of the Fed chairman. This morning the WSJ chimed in with an outraged editorial headlined “We’re All Keynesians Now.” Complained those unrepentant (and increasingly embattled) anti-Keynesians:
A fiscal stimulus that really stimulates would change incentives, and do so permanently so workers and investors can know what to expect and take risks accordingly.
Well, now the president appears to have joined Bernanke on the Keynesian side of the economic-policy river. One can understand why: I hear there’s a big election in November, and history teaches us that the worse the economy does this year, the worse things will turn out for the party currently in control of the White House. So ideology be damned. It’s time to stimulate!
As Hank Paulson just put it in his press conference: “The potential cost of not acting has become too high.”
Eddie Lazear, the current chairman of Bush’s Council of Economic Advisers, did say the administration wants to get some amount of investment tax relief into the package. It’ll be interesting to see if the Democrats go for that.
Update: Another Paulson quote: “There’s plenty of evidence: You give money to people quickly, they’re gonna spend it.”
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