Measures of stimulus

Consistent stimulus causes addiction. Alcohol, gambling and tobacco all stimulate different parts of our brains, but when any one of them is regularly present for a prolonged period of time there is a high likelihood of dependency forming.

Economic stimulus poses the same risk. Take the tax cuts of 2001. They were meant to cut short a recession that was just then gathering steam. The people that they benefited, almost everyone, got used to them and do not want them to go away, ever. One of the main planks in the platform that helped George W Bush get elected to a second term in the White house was a pledge to make those tax cuts permanent even though the economy was in good shape.

Quitting cold turkey sucks. What we need to do is to start tapering off individual stimulus measures as they come up for renewal. If the money is still deemed necessary for the economy then find a new project to put it into. When the home buyer tax credit is ready to expire on the first of July it will be tempting to extend it again. It should be cut in half to send the signal that it is not permanent but that the market will still be supported as necessary.

The beauty of the cash for clunkers program was that it was so short that any market distortion it had did not last. But it did make a difference. The economic situation has reached a point where targeted bursts of stimulus will be better at keeping the herd moving in the right direction unless you’d rather table this discussion now and pick it up again in ten years.