Maybe it was just a Santa rally that overstayed the holiday. But that 52-point jump Wednesday in the Dow Jones Industrial Average, to 10,088, is one more small reason to conclude Congress unwittingly made the right call on an economic stimulus package.
The new normal in Washington now looks comfortably like the old normal. After all the bipartisan bluster about the urgent need to build confidence in the economy, Congress last week reverted to gridlock and finger-pointing.
Your elected representatives went home for the holidays without passing any legislation at all to help the economy.
But don’t fret. This is hardly a catastrophe.
Yes, the economy is in recession and layoffs continue to mount. These are terrible times for thousands of Americans who have been handed pink slips. But as the stock market recovery of recent weeks testifies, there’s also some anticipation that the economy will recover next year–with or without help from Capitol Hill.
The index of leading economic indicators, which forecasts future economic activity, rose again in November. That index has now gone up four of the last six months, the clearest signal yet that the 11 short-term interest rate cuts ordered by the Federal Reserve Board this year are having an impact.
The last four of those cuts have come since the Sept. 11 terrorist attacks brought the economy to a sudden, if temporary, decline. During those same months, politicians in Congress squabbled over precisely what combination of tax cuts and higher spending would produce the best medicine to help the ailing economy.
Republicans and Democrats each pointed fingers across the aisle, arguing that the other guys’ plan was too expensive and wouldn’t pull the economy out of recession.
They were both right.
That perfectly illustrates the fundamental problem with any fiscal stimulus. By the time the politicians come to the rescue, the help is rarely needed, or goes to the wrong place.
By contrast, the benefits of monetary stimulus–lower interest rates–are already working their way through the $10 trillion U.S. economy.
Neither party will admit this, of course, but for each, the opposition had a point. The rival $75 billion to $100 billion packages were bloated with spending increases and tax cuts that hardly qualified as an immediate, targeted and temporary stimulus.
In fact, this debate always had a lot more to do with politics than with economics. The two sides had agreed on so much (some acceleration of previously passed tax cuts, business tax breaks and more help for low-income workers and the unemployed) and remained divided on so little (how to deliver health insurance to those without it) that the whole exercise smacked of jockeying for position for next year’s elections.
For members of Congress the question came down to this: Do you want a deal or an election issue?
Republicans decided they would rather paint Democrats as obstructionists; Democrats decided they’d rather color the GOP as insensitive to those who are suffering through bad times.
Those portraits may work as campaign strategies. But they are cynically inaccurate, and the politicians know it. They’re betting that voters aren’t smart enough to hold such self-absorption against them during next fall’s election.
The pols had a choice and they voted for election issues. The economy will recover just fine without them
