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Letter to the editor

Stimulate the economy, don't play politics with it

By STEVEN PEARLSTEIN, Washington Post
Published January 11, 2008

You'd think that if politicians were skilled at anything, it would be at reading election returns.

You'd never know it from the way President Bush and congressional leaders led off the debate on a short-term economic stimulus package this week, completely ignoring the unmistakable message from Iowa and New Hampshire that people are fed up with the poisonous partisanship coming out of Washington.

The president started it off with a speech in Chicago in which, after acknowledging that there is too much partisanship in the capital, he argued that the best way to keep the economy humming was to extend his tax cuts. Not only is this a nonstarter with the Democratic Congress, but there isn't a credible economist who would argue that extending tax cuts set to expire in 2010 will do much to help the economy in 2008.

As if on cue, House Speaker Nancy Pelosi, D-Calif., responded to Bush's partisan nonsense with some of her own. After declaring her willingness to "work in a bipartisan way with the president to stimulate the economy," she blasted Bush for policies that have "failed millions of working families."

Not to be outdone, House Republican leader John Boehner of Ohio issued a news release criticizing the Democratic "tax-and-spend agenda." Never mind that Democrats don't even know what they'll propose.

Meanwhile, Barack Obama was bringing the crowd to its feet in Salem, N.H., by talking about the risk of electing the "same old people" who say "the same old things, over and over ... hoping that the next time the results will somehow be different."

Does anyone want to connect the dots here?

Look, folks, this ought to be an easy one. Almost everyone agrees that recession is likely and a modest amount of fiscal stimulus could provide an economic cushion. It won't prevent a recession, but fiscal stimulus could be an insurance policy against the economy spiraling out of control.

To broaden the political support for the package, you'd probably want to include money for the states, so they don't have to raise taxes or cut payrolls in the face of declining tax revenues. To win support of Republican business interests, it will almost certainly be necessary to throw in some tax breaks.

Since the housing downturn is heavily implicated in this recession, there are two other elements I'd add to the package.

One is borrowing from future federal housing subsidies and making them available this year to state housing authorities. With prices low and going lower, and so much unsold inventory on the market, this would be the perfect time for housing authorities to buy condos and townhouses and rent them to eligible lower- and moderate-income families.

The other idea would be for the government to jump-start the creation of a new type of housing finance instrument that would be a blend of debt and equity and could be used to spur demand for housing and avoid foreclosures.

Introducing this new instrument wouldn't cost a dime. All it would require is a few minor changes in the tax code and a federal pre-emption of some states' lending laws.

[Last modified January 11, 2008, 01:22:30]