Will it work?

The House has now passed an $819 billion dollar stimulus package. Despite President Obama’s attempts to produce a bipartisan bill, not a single Republican voted for it, and the Democrats excluded the Republicans completely while shaping the bill. This doesn’t bode well for bipartisan efforts on the Hill.

The Republicans argue that tax cuts are a more effective way to get money quickly into the economy. But there isn’t much evidence to support that. The Bush stimulus bill earlier in 2008, which gave most people a tax rebate, had almost no perceptible effect on the economy. It seems likely that any tax rebates from this new bill will be similarly ineffective, especially as long as consumers are frightened and worried about the economy and the security of their jobs, if they even have a job by now.

The Democrats argue that the solution is to inject a lot of new money into the economy, but in fact most of what they have proposed in the bill will take years to put in place. Besides that, the bill has become a free-for-all for Democrats to fund every program they ever dreamed of funding. Some, like more money for education or to computerize medical records, are laudable in themselves, but will not have much effect on the economy for years. Others, like $20 million in sod for the Mall in Washington, are just plain stupid.

Nor has the TARP program (the first $700 billion Congress gave away) been particularly impressive. Credit is still tight, and the Wall Street types still don’t get it, as evidenced by the outsized bonuses still being paid even as banks ask for government bailouts. The argument that these bonuses are essential to keep their best talent makes me wonder – what talent? The same bright guys who got us into this mess in the first place? And why did the government have to force Citibank not to take delivery of a new $50 million corporate jet – who was so dumb at Citibank that they thought buying a $50 million jet when you are being bailed out by the government was a good idea?

I expect Congress feels the need to be seen to be doing something, but I don’t hold out much hope that this next $819 billion will have much effect, beyond inflating the national debt and expanding the size of government.

What probably needs to happen is short-term nationalization of the banks, perhaps with some process that takes many of their bad assets off their books. Then the government could force them to begin lending again, and incidentally clean out their incompetent management before letting them go private again. The taxpayers ought to get senior equity out of this, so that when the banks are healthy again they first pay back the U.S. before they resume outsized executive bonuses, multi-million dollar office redecorating, or new $50 million corporate jets.