The U.S. economy, already stumbling, took a terrible jolt a little more than two weeks ago. On Sept. 11 the nation stopped–stopped working, stopped playing, stopped spending, stopped flying . . . just stopped. And while the machine cogs that spur American productivity are starting to churn again, there’s no question that public confidence has been badly shaken.
Few doubt that the nation is headed toward, or already in, a recession.
Now before Congress is a debate whether to step in with stimulus measures to avoid a severe economic downturn.
Congress should wait.
“It’s far more important to be right than quick,” Federal Reserve Board Chairman Alan Greenspan said last week. That’s sound advice. Listen to him. The worst mistake the government could make right now is hastily passing measures that undermine the long-term fiscal health of the nation.
Granted, these are not normal times. Greenspan, however, has said the long-term prospects of the $10 trillion U.S. economy have not been fundamentally diminished. That view may change in the weeks ahead as the economic impact of Sept. 11 is gauged. But Congress has time to assess that outside the pressure to act in a crisis atmosphere.
The most often mentioned proposal is a capital gains tax cut plus a cut in corporate income taxes. Congress has to weigh whether such measures, coupled with likely declines in federal tax revenue and increased spending on defense and security, would push the government back into deep deficit spending. That would be likely to undermine consumer confidence.
Measures that would add to business costs, such as a proposed increase in the minimum wage, would be a disaster. A minimum-wage hike on the cusp of a recession would drive employers to put more people out of work.
In the wake of the terrorist attacks, the Federal Reserve Board has flooded the U.S. and global economy with enough cash to prevent an immediate seizure and also cut short-term interest rates another half-point. The central bank is widely expected to cut rates again, for the ninth time this year, when it meets Tuesday.
As well, the impact of federal tax rebates and the earlier Fed rate cuts have yet to work their way into the economy. They will help.
Congress has already approved $55 billion in additional spending since the attacks–$20 billion to help New York, $20 billion to boost security and fight terrorism and $15 billion to bail out the airlines. There will be more pressures to spend.
In a moment of crisis the urge to act, particularly on the part of politicians, no doubt is strong. But there has to be an urge, as well, to act responsibly.
