Stimulus Gone Bad

The words of Franklin Delano Roosevelt come to mind: “We have always known that heedless self-interest was bad morals; we know now that it is bad economics.” And the worst of it is that the Democrats, who should have been in a strong position ... appear to have caved in almost completely.

By PAUL KRUGMAN
New York Times

House Democrats and the White House have reached an agreement on an economic stimulus plan. Unfortunately, the plan — which essentially consists of nothing but tax cuts and gives most of those tax cuts to people in fairly good financial shape — looks like a lemon.

Specifically, the Democrats appear to have buckled in the face of the Bush administration’s ideological rigidity, dropping demands for provisions that would have helped those most in need. And those happen to be the same provisions that might actually have made the stimulus plan effective.

Those are harsh words, so let me explain what’s going on.

Aside from business tax breaks — which are an unhappy story for another column — the plan gives each worker making less than $75,000 a $300 check, plus additional amounts to people who make enough to pay substantial sums in income tax. This ensures that the bulk of the money would go to people who are doing O.K. financially — which misses the whole point.

The goal of a stimulus plan should be to support overall spending, so as to avert or limit the depth of a recession. If the money the government lays out doesn’t get spent — if it just gets added to people’s bank accounts or used to pay off debts — the plan will have failed.

(Continued here.)