Lollipop Economics 101.(Robert J. Samuelson; JUDGMENT CALLS)(economic policy and the U.S. presidential elections)(Column)

Byline: Robert J. Samuelson

An aeconomic stimulusa package would be less about altering the unemployment rate and more about influencing votersa views of vying politicians.

You have no doubt heard the well-worn dictum of Karl Von Clausewitz, the great Prussian military strategist, that war is the extension of politics by other means. Well, the same is true of economic policy. As often as not, itas politics by other meansaand the looming debate over whether the country needs an aeconomic stimulusa program will, if nothing else, reaffirm that. The debate promises to be more about politics and public relations than economics. aEconomic stimulusa is shorthand for tax cuts and/or increases in government spending designed to accelerate economic growth and job creation. We need that now, say advocates, because the economy is on the verge of a recession or already in one. House Democrats are reportedly discussing a package of $100 billion or more in temporary tax rebates and grants to states. Not to be outdone, the Bush administration is studying tax rebates and business investment incentives.

Call this Lollipop Economics. Itas an election year. Voters feel anxious about a weakening economy. Send them economic lollipops (say, a $500 tax rebate for most families). Make them feel better. Show them youare concerned. Prove that youare trying to improve the economy. Above all, make sure they know where the lollipops came fromaDemocrats or Republicans. Inevitably, presidential candidates offer proposals.

Superficially, the case for astimulusa seems plausible. In December, the unemployment rate rose from 4.7 percent to 5 percent, a huge one-month increase. Jobs are not now keeping pace with the growth of the labor force. The December increase in payroll employment was a meager 18,000, and all that stemmed from government jobs. The economy needs a shove. Lawrence Summers, Treasury secretary in the Clinton administration, has proposed a $50 billion to $75 billion stimulus to be enacted in the next few months.

Every day, the housing situation seems to worsen. Last week Countrywide Financialathe nationas largest mortgage lenderareported that new foreclosures were higher than expected. Jared Bernstein of the Economic Policy Institute, a liberal think tank, likens a stimulus package to insurance. aThe important part,a he says, ais to prevent a bad situation from getting worse.a Bernstein worries that Federal Reserve policy aloneacuts in short-term interest ratesawonat suffice to spur the economy.

All this sounds sensible, but it ignores a confounding dilemma. Folks, we have a $14 trillion economy. A one-time stimulus (rebates arenat permanent tax cuts, and grants to states would probably be temporary) of $75 billion or $100 billion is too small to do much. If the economy is in serious trouble, something much larger is needed. But if the outlook is not so dire, then a modest stimulus plan is mostly political symbolism.