- The Washington Times - Monday, March 8, 2010

At every opportunity, Obama administration officials sing the praises of their “stimu-

lus” program. Their $3.8 trillion budget for the coming fiscal year calls for even more, including a new $100 billion “jobs” program and targeted tax breaks.

But is more necessary? And are we talking about measures that will boost the economy and create jobs, or are we talking about special-interest giveaways?

Besides not being helpful to the economy, most of the new proposals fly in the face of the White House’s commitment to “freeze” non-security-related discretionary spending. They also ignore the fact that the economy, as it always does when a recession hits bottom, will rebound without additional stimulus. Recessions, like periods of economic growth, eventually run their course and move in the opposite direction. Our organization, the American Institute for Economic Research (AIER), has been studying these movements for 77 years.

In February, 10 of 11 AIER leading economic indicators that showed discernible trends expanded. (Our leaders include measures such as new orders for consumer and capital goods, new housing permits, initial unemployment claims, length of the average manufacturing workweek.) The cyclical score for the leading economic indicators stands at 66; anything above 50 indicates a recovery.



A second category of statistical measures, our “coincident” indicators, also showed improvement, with personal income (less transfer payments) and manufacturing and trade sales increasing. With 67 percent of these indicators expanding and their cyclical score near 50, they also suggest the recession likely is over.

By definition, the start of a recovery marks the lowest point in the business cycle, where production and income are at low levels and unemployment is at a high level. That certainly is the picture today, with total unemployment just less than 10 percent and the goods-producing industries, which include manufacturing, construction and mining, dropping another 60,000 net jobs in January.

Despite the promising signs, election-year politics seem to be in high gear, with a hodgepodge of stimulus proposals on the table.

If the proposals look like a laundry list of projects designed to benefit special constituencies, that’s because they are: additional child care funding for low-income families; an increase in the Child and Dependent Care Tax Credit for working families; a lower limit, relative to income, to federal student loan payments; expanded federal support for families caring for elderly relatives; additional aid to state governments to help retain teachers and firefighters; more infrastructure spending; extended unemployment benefits; and on and on.

The White House initiatives alone could cost as much as $200 billion. The House and Senate have their own plans, some overlapping with the president’s, some not.

The bad news is that most of the measures will have modest effect, if any, on the economy. The increased child care tax credit, for example, will put additional money in the pockets of families with children, but only after they file their tax returns for the year and only if they owe taxes. If they don’t owe taxes, the additional credit makes no difference.

Nor will the other initiatives make much difference. Capping federal student loan payments, for example, and forgiving the balance of the loan after a certain number of years (provided the recipient works for the government) is touted as a way to make college more affordable. But the hidden subsidy will increase demand for college and lead to rising tuition. Today’s students may benefit. Future students may find college unaffordable.

Washington’s schizophrenic approach to policy and budgeting does not elicit confidence - and suggests that the politicians are not really serious about solving America’s fiscal problems.

While the great stimulus game continues, Washington ignores the dangerous elephant in the room: the huge entitlement programs, such as Social Security and Medicare, that will drive the budget deficits for decades to come.

Polina Vlasenko is a research fellow at the American Institute for Economic Research in Great Barrington, Mass.

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