The only thing more scary than the possibility of a recession is the thought that politicians are working on ways to head it off. At least, in the post-Reagan era, most politicians on both sides of the aisle appear to understand that lagging economies can benefit when people have more money in their hands.
The president and Congress appear to be heading toward an agreement that would return about $100 billion or more to the economy in the form of tax rebates and other incentives. The rebates could be as high as $800 per person, or $1,600 for a married couple.
Despite criticism from some conservative quarters, rebates would be good for the economy. Even if people decide to put the extra money in the bank, that infusion would aid banks and find its way into the economy through loans and other investments. Indeed, there is no way the $100 billion would not churn in the economy, unless people decide to stuff the money in their sock drawers highly unlikely in an age where Americans have been conditioned to view spending as a patriotic duty.
A rebate would not be as effective as general tax cut. Rebates take money that already has been sucked out of the economy and return it in equal amounts to all taxpayers. Tax cuts leave money in the hands of those who know best what to do with it, and they instill investor confidence because of their permanence.
But at least a rebate recognizes one overriding truth a dollar of private-sector spending always goes farther than a dollar of public spending.
The lesson of post-World War II recessions is that they tend to be short, so long as politicians don't try to meddle too much. The hard lesson from the Great Depression is that most New Deal programs did little more than assure unemployment rates above 10 percent for 11 long years.
Today's economy has shown a remarkable resilience in the face of terrorist threats, record-high gas prices and a subprime mortgage lending fiasco that may cost more than 1 million people their homes. It's impossible to predict how deep or long-lasting the current slow-down will be, given all the unique factors.
However, the last recession, in late 2001, came amid similar bad news. The nation was reeling from a terrorist attack, and a high-tech scandal destroyed some large companies and sent many people out of their jobs. In retrospect, the tax cuts President Bush pushed through that year helped the nation recover quickly. At the time, Democrats such as Sen. Tom Daschle actually blamed those cuts for causing the recession.
Politicians practicing economics can be scary, indeed.