Medicine for the economy

What happened

President Bush called for $145 billion in tax breaks and business incentives to give the economy a “shot in the arm” and avert a recession. (Newsweek.com) Federal Reserve Chairman Ben Bernanke told Congress Thursday that he supported putting money into the hands of taxpayers quickly, possibly through rebate checks, but stocks remained volatile on fear that the housing crisis would spark a recession. (The New York Times, free registration)

What the commentators said

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Bernanke’s support is crucial to getting something passed by Congress quickly, said Dawn Kopecki in BusinessWeek.com. So will his apparent willingness to slash interest rates to boost economic activity. “One problem Bernanke may not be able to overcome: He lacks the swagger and devout following of his predecessor, Alan Greenspan.”

It was nice of Bernanke to join Bush in endorsing tax cuts and more federal spending as ‘fiscal stimulus,’” said The Wall Street Journal in an editorial. The trouble is, his insistence on “temporary” cuts—say, a one-time tax rebate check—was “a dagger aimed directly at the heart” of Bush’s “desire to make his tax cuts permanent.”

Making the tax cuts permanent is the only thing that will really help, said Louis R. Woodhill in National Review Online. Financial markets are being dragged to their knees by uncertainty, so it will soothe investors and consumers to know that tax relief is here to stay. Short-term government spending and rebate checks won’t help there, so assuming that they’ll stave off a recession is nothing but “economic superstition.”

Actually, it’s probably “too late to prevent a recession,” stimulus or not, said Paul Krugman in The New York Times. It won't be horrible -- but things could get "quite unpleasant" for a year or two. “Capital flowing into America from global investors ended up financing a housing-and-credit bubble that has now burst, with painful consequences.” The time to act was when Bush and Greenspan could have provided “adult supervision over markets running wild.”

Come now, said Samuel Brittan in the Financial Times, “there is no need to talk ourselves into a Great Depression.” The important thing is to make sure “there is a real danger of a slowdown” before passing a stimulus package, and that point still isn’t clear. If a recession looms, policy makers have no “lack of instruments” to boost economic activity.