Americans Spent Their Stimulus Checks

According to the Commerce Department, the Bush tax-rebate stimulus plan worked just like it was supposed to work. Because the rebate checks went out after people filed their taxes on or before April 15, American disposable incomes rose 5.7% in May, the largest increase in 33 years. In turn, this boosted consumer spending by 0.8%, which is the biggest gain since November 2007. So, the economy probably won’t shrink in the second quarter. However, the question becomes what can the government do next to avoid recession?

The problems for the American economy are largely structural at this stage. The Democrats are suggesting a second batch of checks and business investment incentives, but a second stimulus package will have only temporary results. If one looks back at Japan in the 1990s, structural problems prevented several stimulus efforts from bearing fruit. This journal is all in favor of government action to address short-term problems, but only if the powers that be start to come to grips with the long-term difficulties. Thus far, none seem willing to grasp the nettle.

The two biggest problems are the twin deficits: the federal budget deficit and the US trade deficit. To start with the former, the Bush administration has been the most profligate in American history. Between ill-advised tax cuts and an ill-advised war in Iraq-Nam, Mr. Bush has virtually bankrupted the American government. This has to change. Severe budget cuts and higher taxes are needed to put the government’s finances back into balance. As for the trade deficit, America has stupidly adopted a policy of unilateral disarmament in trade negotiations. It is too late to fix much of it, but vigorous pursuit of World Trade Organization sanctions against Chinese slave labor and European subsidies to industry would be a start.

Nevertheless, the fact that America imports oil at the rate of 11 million barrels a day suggests that tougher trade policy isn’t enough. A radical (yes, that word) shift in American energy policy is needed. There is sufficient wind, solar, tidal and geothermal energy resources in the US to get rid of most of the oil imports within 10 years. The market, though, isn’t going to make the shift. Government action will be needed to make full use of these resources. Failure to make this shift will mean a continued trade deficit until the oil is simply gone. Great power decline is an ugly thing, but that is what will happen.

Finally, America has to make a shift in its income distribution. The Bush stimulus package proved that a few hundred dollars in the hands of the poor, the working class and the middle class does more to move the economy forward than giving multi-millionaires hundreds of thousands back. Having a large middle class, and having opportunities for those outside it to move into it, was the great legacy of post-World War II America. In Marxian terms, the embourgeoisment of the proletariat (that is, paying factory workers enough that they could buy a home, send kids to college and maybe own a boat as well as a car) was the key to American prosperity and power. That has been damaged badly, and the restoration of that system will require more than $600 checks every now and then.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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