- The Washington Times - Tuesday, December 11, 2001

In declaring that any economic stimulus package must be supported by two-thirds of the Senate's Democratic caucus in order to be considered, Senate Majority Leader Tom Daschle should know that he is making the White House an offer it can easily refuse. By any reasonable standard, Mr. Daschle's requirement is audacious in the extreme. After all, Democrats control and by the slimmest of margins only one of three political institutions required to sign off on any stimulus package. (The Republican-controlled House of Representatives and White House are the other two.)
Clearly, any spending-oriented "stimulus" package bearing the imprimatur of 34 Senate Democrats is unlikely to be embraced by the White House. R. Glenn Hubbard, chairman of the White House Council of Economic Advisers, told Donald Lambro of The Washington Times last week that he would recommend to President Bush that he veto a stimulus bill that either contained few tax-cut incentives or overflowed with spending proposals. "I think we need a stimulus package," Mr. Hubbard told Mr. Lambro in an interview, "but that means a real stimulus package." The message seemed clear: If Mr. Daschle hopes to get Mr. Bush's signature on a stimulus bill that includes Mr. Daschle's cherished payroll-tax rebates of $300 for singles and $600 for couples who did not qualify for the earlier round of income-tax rebates, then he should compromise on the Republicans' demand for an acceleration of the marginal-rate tax cuts that offer real incentives.
Any objective survey of the current state of the U.S. economy, which officially entered a recession in March, would confirm Mr. Hubbard's view that a properly fashioned stimulus package is in order. The unemployment rate jumped to 5.7 percent in November, representing an increase of 1.8 percentage points since October 2000. Non-farm payroll employment fell by 331,000 in November, as the goods and services sectors each lost more than 160,000 jobs. In October, the economy shed another 468,000 jobs. During the three months that preceded the unemployment spikes in October and November, the economy contracted by an annual rate of 1.1 percent. Increases in consumer spending, which decelerated sharply in the third quarter, could no longer outweigh major declines in business investment, which fell nearly 10 percent during the third quarter, and exports, which plunged by 17.7 percent. In November, industrial output continued to fall, reflecting a cumulative decline of 6.3 percent from its level a year ago. Meanwhile, unused industrial capacity now exceeds 25 percent.
In considering its next step, the Federal Reserve, whose monetary policy-making committee meets today, obviously must take into account the Daschle-instigated paralysis that has prevented the pursuit of sound countercyclical fiscal policy. To the credit of Fed Chairman Alan Greenspan and his colleagues, the Fed has aggressively reduced short-term rates since the beginning of the year. Already, 10 separate cuts have cumulatively reduced the overnight rate from 6.5 percent to 2 percent. Fortunately, today's Fed meeting occurs in an environment of drastically subdued inflationary pressures. Producer prices are lower today than they were a year ago, and during the past three months, consumer prices have only increased at a 0.5 percent annual rate. The so-called personal-consumption expenditure price index, widely reported to be among Mr. Greenspan's favorite inflationary gauges, actually declined during the third quarter.
With the White House rightly resisting a counterproductive fiscal stimulus package based on permanent spending increases, the Fed should feel comfortable knocking another quarter-percentage point from short-term interest rates.

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