You know a situation is bad when Democrats and Republicans in Washington -- nearly all of them -- say they're ready to do something about it. Either that or it must be an election year.
Case in point: the push to stimulate the economy with borrowed funds to stave off a possible recession. Although many aspects of the U.S. economy remain healthy, nervousness about a downturn has become so acute that overseas markets plunged Monday, and U.S. exchanges followed suit Tuesday morning. Stocks rebounded on the news of an unusually steep interest rate cut by the Federal Reserve, yet the jitters led President Bush to reiterate his call for Congress to act quickly on "an effective pro-growth economic package."
Backed by celebrity economists on the right and left, politicians have embraced the idea of trying to pep up spending. Democrats, including presidential hopefuls Hillary Rodham Clinton and Barack Obama, want one-time tax refunds and rebates aimed at lower-income people, who would be most likely to circulate it back into the economy. Republicans, including Bush, favor investment tax credits and other breaks for business, which might generate new jobs. Mostly, both sides coo about working together.
All the talk of bipartisanship is nice, but it's time to put this "Kumbaya" moment in perspective. Whether the country is nearing a recession or not -- and some economists still harbor doubts -- any "rescue plan" will be only a drop in the bucket, a $150-billion ripple through a $14-trillion mega-economy. Even the Fed's dramatic rate cut may not ease the credit crunch brought on by lenders' overindulgence in risky mortgages, leveraged buyouts and start-ups. There's a natural cycle by which the market learns from its mistakes, and the lessons of the latest easy-money bubble are still being absorbed.
Regardless, the debate over a stimulus package is not the place for philosophical arguments about permanent tax cuts or expanded government spending. Such steps might do more to fuel growth over the long term but have little to do with short-term needs. Nor should Congress rush to provide tax refunds, which have been ineffective in the past because most consumers recognize that the gain is fleeting. It might accomplish more by providing limited-time tax incentives to accelerate capital investments and by extending unemployment benefits. We'll trust Fed Chairman Ben S. Bernanke's judgment that a stimulus plan could be helpful, if temporary and quickly implemented. But tinkering with the economy is speculative at best -- something lawmakers should remember before they start cutting checks.