Speaker of the House Nancy Pelosi has declared that we need another stimulus package. She was not forthcoming on the details but she made the statement alongside former Treasury Secretary Lawrence Summers who said the nation needs to focus on â€œincreased unemployment insurance and food stamps and support for state and local governments.â€
I think we can reasonably assume that by another â€œstimulusâ€ package Pelosi means she wants increased â€œwelfareâ€ payouts. Sheâ€™s talking New Deal politics here. The question is, with unemployment at just 5%, do we really need New Deal style solutions? Outside of the planned $300 billion in government-backed housing loans that has a good chance of being passed by Congress, Iâ€™m not sure thereâ€™s a lot the federal government can do to quickly jumpstart the economy. Iâ€™m not even sure if the housing bailout will do much to help that increasingly troubled market, even though it could help prevent the economic snowball that could occur if large numbers of Americans default on their mortgages.
Recessions are part of the business cycle and have grown less severe and less frequent in the last quarter century. We can reasonably assume that our economy, if indeed headed into recession, will pull out of this funk with minimal governmental interference outside of interest rate cuts and possible tax cuts. However, because food and energy prices are rising quickly, weâ€™re in danger of stagflation, which is worse for the common consumer than is a recession.
So shouldnâ€™t our government, if itâ€™s going to intervene in our economics, focus on energy and food costs, since that is the more troubling problem? Food stamps and unemployment payments do nothing to help the vast majority of us. If Pelosi and others want a new stimulus package, Iâ€™d suggest finding a way to help us deal with inflation. Maybe focus on strengthening the dollar since our currencyâ€™s decline has a lot to do with rising oil prices. Maybe reform our ethanol policies since those are directly impacting food costs. Those are hardly the kinds of sexy ideas that win elections, but theyâ€™d be a much better place to start looking for solutions than would turning to the out-of-date ideas of New Deal politics.