The stimulus maw

A zombie is a mindless creature, controlled by sinister forces outside its body, which subsists by devouring everything in sight. Frankly, that sounds a lot more like Shrum’s stimulus-hungry Democratic majority than like the Republican opposition.

The Democrats’ stimulus is packaged as an emergency jolt to the economy. But its single biggest element, worth more than $300 billion, is a huge money transfer to the states. For all the talk of “shovel ready” infrastructure projects, many states will simply use this money to sustain current spending—over-generous local Medicaid programs above all. For example, the State of Michigan has explicitly asked that extra money be directed to high unemployment states. (Michigan currently ranks highest on this grim measure, followed by Rhode Island and California.) With an influx of cash from Washington, these states would be free to use federal funds to underwrite a range of pre-existing social welfare programs.

The second biggest piece of the proposed stimulus package is a new refundable tax credit targeted at taxpayers too poor to pay income taxes. History suggests that most recipients will use this federal largesse to reduce their personal debt, rather than buy things. So while the measure would help the balance sheets of lower income families, it would provide little additional stimulus to the overall economy.

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The third element, in order of size, is a proposed extension of federal unemployment insurance. This last is not a crazy idea, but it comes with an ominous side effect. While extended unemployment benefits do cushion the pain of job loss, they also tend to prolong periods of unemployment. Previous recessions confirm that the longer benefits are paid, the longer workers postpone their return to the workforce. That tradeoff may make sense in the current environment, but do understand what we are trading: in order to make the downturn less severe, we will probably make it longer.

Add it all up, and this so-called “recovery” package looks less like a true “stimulus” than like a combination of a bailout of the freest-spending states (typically also the bluest states); plus a big burst of income redistribution from people who pay income taxes to people who don’t; plus an unemployment measure that amounts to the very opposite of a stimulus.

No wonder Republicans mistrust the measure. Unfortunately for them, and for the country, they may lack sufficient silver bullets to halt the attack of cash-hungry Democratic zombies before they devour us all.