Economic Stimulus Plan Analysis

The consensus these days among economists is that America is on the brink of or already in a recession. This premise may or may not be true, but the reaction to the possibility of a recession says alot about where our society is today.

First of all, it's no longer acceptable in America to just go through a recession and come out of it hopefully with a strong recovery on the other end. No, we must do something to prevent it before it happens. Of course, the government must be the ones to fix the problem because after all, they are here to take care of us.

What happened to the notion that hard times, or in economic terms, corrections have to happen once in a while. After six years of outstanding growth since our last recession, this economy is probably due for a little downturn, especially in the housing sector.

Talk about a sector that is badly in need of a correction. Housing prices have been skyrocketing out of control since the late nineties. There were some parts of the country that saw real estate gains of over 100% in just two or three years. Anyone with half a clue knew that this pace could not continue. I do believe that long term, real estate will come back, but there are probably a few more "lean" years ahead for this sector.

So the president and congress have bought into the notion that government must do all it can to avoid a recession. Neither wants to be blamed in an election year for neglecting those who are hurting out there, so both are working furiously to put together a deal that both sides can live with.

What I find interesting about the stimulus plan being negotiated is that it is primarily in the form of tax rebates. In other words, temporary, short-term tax cuts. This is remarkable! Apparently, even the Democrats are willing to go along with this plan. Even they acknowledge that tax cuts actually stimulate economic growth, strengthening the economy and increasing receipts to the national treasury.

I remember growing up in the 1970s when we had far worse economic times than now. Inflation, unemployment, and interest rates were all in double digits. At that time, no one ever suggested cutting taxes. It wasn't until Ronald Reagan came along in 1980 and showed us that supply-side economics works.

More than a quarter century later, this is now accepted as conventional wisdom. This is an example of why elections matter and have consequences. The more conservative principles are applied, the more they are proven to be effective.